Sim SDL Acc 216 W4 5 Final

UNIVERSITY OF MINDANAO
College of Accounting Education

Program: BSA, BSIA, BSMA, BSAIS
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)
(Week 4-5)
Course/Subject: ACC 216 – OBLIGATIONS AND CONTRACTS

Name of Teacher: ATTY. ALNESSA THEA R. UY, REB
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR
REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS INTENDED USE.
THIS IS INTENDED ONLY FOR THE USE OF THE STUDENTS WHO ARE
OFFICIALLY ENROLLED IN THE COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
THIS IS NOT FOR COMMERCIAL USE.
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TABLE OF CONTENTS
Particulars Pages
Cover Page 1
Table of Contents 2
Course Outline 3
Big Picture Unit Learning Outcome a (BB ULOa): 3
Metalanguage 3-8
Essential Knowledge: Chapter 3 - Different Kinds of
Obligations 8-50
Self-helf 50-51
Let's Check 51-53
Let's Analyze 53-54
In a Nutshell 54-55
Q & A List 55
Keywords Index 55-56
Big Picture Unit Learning Outcome b (BB ULOb): 56
Metalanguage 56-61
Essential Knowledge : Chapter 4 –Extinguishment of
Obligation 61-107
Self-helf 108
Let's Check 108-111
Let's Analyze 111-112
In a Nutshell 112
Q & A List 112-113
Keywords Index 113
Course Schedules 114
Code of Conduct 114-115
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Course Outline: ACC 216 – Obligations and Contracts
Course Coordinator: Atty. Alnessa Thea R. Uy, REB

Email: alnessauy@umindanao.edu.ph
Student Consultation: By appointment thru LMS
Phone: (082) 3050647 loc. 102
Effectivity Date: May 25, 2020 (Summer/Term)
Mode of Delivery: Blended (On-Line with face to face or virtual sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: None
Credit: 3
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled Virtual or face to face sessions.
CC’s Voice: Hello again! Congratulations for having now finished the first three (3)
weeks of ACC 216 or Obligations and Contracts course! I hope you had
fun learning the basic concepts of law and obligations. In the next two
weeks, you will familiarize yourself with the different kinds of obligations
and the various modes of extinguishing them. Have fun, good luck, and
God bless!!!!
Let us begin!
Big Picture
Week 4-5: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to
a. define and differentiate the different kinds of obligations; and
Big Picture in Focus:

ULOa. Define and differentiate the different kinds of obligations.
Metalanguage
In this section, the most essential terms relevant to the study of different kinds of
obligations and to demonstrate ULOa will be operationally defined to establish a
common frame of refence as to how the texts work in your chosen field or career. You
will encounter these terms as we go through with our lessons. Please refer to these
definitions in case you will encounter difficulty in understanding basic legal and
obligations concepts.
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Accessory obligation - is one which is attached to a principal obligation and, therefore,
cannot stand alone.
Casual condition – valid, the condition depends upon chance or upon the will of a third
person.
Civil loss - when a thing disappears in such a way that its existence is unknown; or even
if known, it cannot be recovered, as a matter of fact or as a matter of law.
Collective obligation - one where there are two or more debtors and/or two or more
creditors. It may be joint or solidary.
Compensation – takes place when two persons, in their own right, become creditors
and debtors of each other .
Compensatory penal clause - when the penalty takes the place of damages.
Compound obligation - one where there are two or more prestations.
Condition - is a future and uncertain event, upon the happening of which, the effectivity
or extinguishment of an obligation (or rights) subject to it depends.
Conditional obligation – an obligation which depends upon a future or uncertain event,

or upon a past event unknown to the contracting parties; an obligation subject to a
condition.
Confusion or merger - a debtor is his own creditor.
Conjunctive condition - there are several conditions and all must be fulfilled.
conjunctive obligation - an obligation in which there are several prestations and all of
them are due.
contractual period – a period fixed by the parties in their contract.
conventional indivisibility - where the will of the parties makes as indivisible, obligations
which, by their nature, are divisible.
conventional penal clause - when the penal clause is agreed upon by the parties.
conventional or voluntary period – when the period is agreed upon by the parties.
conventional solidarity - where solidarity is agreed upon by the parties.
definite period - when the period is fixed or it is known when it will come.
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deterioration of thing - when the value of a thing is reduced or impaired with or without
the fault of the debtor.
disjunctive condition - there are several conditions and only one or some of them must
be fulfilled.
distributive obligation – an obligation in which one of two or more of the prestations is

due. It may be alternative or facultative.
divisible condition - the condition is susceptible of partial performance.
divisible obligation – an obligation the object of which, in its delivery or performance, is

capable of partial fulfillment.
doctrine of mutual agency - in solidary obligations, the act of one is act of the others.
express condition - the condition is clearly stated.
facultative obligation –an obligation in which only one prestation has been agreed upon
but the obligor may render another in substitution.
ideal or intellectual division – a division which exists only in the minds of the parties.
implied condition - the condition is merely inferred.
impossible condition - the condition is not capable of fulfillment, legally or physically.
improvement of thing – when the value of a thing is increased or enhanced by nature or

by time or at the expense of the debtor or creditor.
indefinite period - when the period is not fixed or it is not known when it will come.
individual obligation – the obligation in which there is only one obligor and one obligee.
indivisible condition - the condition is not susceptible of partial performance.
indivisible obligation - is an obligation the object of which, in its delivery or performance,

is not capable of partial fulfillment.
joint indivisible obligation– the obligation is joint for the debtors are only liable for their
own share in the whole obligation. . It is indivisible because the object or subject matter
cannot be physically divided into different parts.
joint obligation– an obligation is divided proportionately into how many debtors and/or
creditors there are and each debtor is only liable to pay his share while each creditor
may only collect his part of the whole debt.
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joint or cumulative penal clause - when both the principal obligation and the penal
clause can be enforced.
judicial period - a period designated by the court.
legal indivisibility - where a specific provision of law declares as indivisible, obligations

which, by their nature, are divisible.
legal loss - when a thing goes out of commerce.
legal penal clause - when the penal clause is stated in law.
legal period - when the period is provided for by law.
legal solidarity - where solidarity is imposed by the law.
mixed condition - the condition depends partly upon chance and partly upon the will of a
third person; valid.
mixed solidarity – solidarity on both parts of the debtors and creditors; each one of the
debtors has to render, and each one of the creditors may exact, complete fulfillment of
the obligation.
natural indivisibility - where the nature of the object or prestation does not admit of
division.
negative impossible condition– the obligation not to do an impossible thing; the

condition is disregarded and the obligation is considered pure and valid.
non-reciprocal obligations – the performance of one party is not dependent upon the
simultaneous performance by the other.
novation - is the total or partial extinction of an obligation through the creation of a new
one which substitutes it.
obligation with a period - is one whose consequences are subjected in one way or
another to the expiration of said period or term.
obligation with a penal clause – is an obligation which includes an additional stipulation

to pay a previously agreed indemnity, meant to compel performance, if the primary
prestation is not complied with.
passive obligation – is solidarity on the part of the debtors, any of debtors can be
obliged to fulfill the whole obligation.
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penal clause - is an additional commitment by the obligor, attached to an obligation, to
shoulder greater liability in case of failure to comply with the terms of the contract.
period - It is a day certain which must necessarily come, although it may not be known
when, like the death of a person.
physical loss - when a thing perishes.
possible condition - the condition is capable of fulfillment, legally and physically.
potestative condition – suspensive in character; the condition depends upon the will of
one of the contracting parties.
principal obligation - is one which can stand by itself and does not depend for its validity
and existence upon another obligation.
punitive penal clause - when the purpose of the penalty is simply to punish for breach of
the obligation.
pure obligation - an obligation which has no condition or term upon which its compliance
depends;
real solidarity - where solidarity is imposed by the nature of the obligation.
reciprocal obligations - are those which arise from the same cause and in which each
party is a debtor and creditor of the other.
remission – the gratuitous abandonment by the creditor of his right; acceptance of the
obligor is necessary.
rescission - annulment of contract and restoration of the parties to their prior positions
as if there was never any contract made.
resolutory condition – A condition the fulfillment of which will extinguish an obligation (or
right) already existing.
resolutory period (in diem) - The obligation is valid up to a day certain and terminates
upon the arrival of the period.
simple obligation - one where there is only one prestation.
solidary obligation - is an obligation wherein each one of the debtors may be made to
comply, and/or each one of the creditors may exact complete fulfillment of the
obligation.
subsidiary or alternative penal clause - when only the penalty can be enforced.
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suspensive condition - one the fulfillment of which will give rise to an obligation (or
right).
suspensive period (ex die) - the obligation begins only from a day certain upon the
arrival of the period.
uniform solidarity - when the parties are subject to the same stipulations or clauses.
non-uniform or varied solidarity - when the parties are not subject to the same
stipulations or clauses.
Essential Knowledge
To perform the aforesaid big picture unit learning outcomes a (ULOa), you need to fully
understand the following essential knowledge that will be laid down in the succeeding
pages. Please note that you are not limited to exclusively refer to the these resources.
Thus, you are expected to utilize other books, research articles and other resources that
are available in the university’s library e.g. ebrary, search.proquest.com etc.
Chapter 3 - Different Kinds of Obligations
CLASSIFICATIONS OF OBLIGATIONS (De Leon, 2010, p. 95-96)
1. Primary classification of obligations under the Civil Code:

a. Pure and conditional obligations (Arts. 1179-1192.);
b. Obligations with a period (Arts. 1193-1198.);
c. Alternative (Arts. 1199-1205.) and facultative obligations (Art. 1206.);
d. Joint and solidary obligations (Arts. 1207-1222.);
e. Divisible and indivisible obligations (Arts. 1223-1225.); and
f. Obligations with a penal clause. (Arts. 1226-1230.)
2. Secondary classification of obligations under the Civil Code:

a. Unilateral and bilateral obligations (Arts. 1169-1191.);
b. Real and personal obligations (Arts. 1163-1168.);
c. Determinate and generic obligations (Art. 1165.);
d. Civil and natural obligations (Art. 1423.); and
e. Legal, conventional, and penal obligations. (Arts. 1157, 1159, 1161.)
3. Classification of obligations according to Sanchez Roman:

a. By their juridical quality and efficaciousness:
1. Natural. — according to natural law;
2. Civil. — according to civil law; and
3. Mixed. — according to both natural and civil law.
b. By the parties or subject:
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1. unilateral or bilateral;
2. ndividual or collective (see Arts. 1207, 1208.); and
3. joint or solidary.
c. By the object of the obligation or prestation:
1. specific or generic;
2. positive or negative (see Art. 1168.);
3. real or personal;
4. possible or impossible (see Arts. 1183, 1306.);
5. divisible or indivisible;
6. principal or accessory (see Art. 1226.); and
7. simple or compound (see Art. 1199.); if compound, it may be:
a. conjunctive or
b. distributive
d. By their juridical perfection and extinguishment:
1. Pure or conditional; and
2. With a period.
Section 1 – Pure and Conditional Obligations
Article 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory condition shall also be

demandable, without prejudice to the effects of the happening of the event.
PURE OBLIGATION – an obligation which has no condition or term upon which its
compliance depends; immediately demandable by the creditors and the debtor cannot
be excused from not complying with his prestation.
Example: Deither borrowed P100,000.00 from Craig. If there is no condition and no date
mentioned for its payment, the obligation is immediately demandable. In a newly
contracted obligation, this does not mean immediately payment right after the obligation
was made, as a term must have been intended by the parties for its fulfillment (See
Floriano v. Delgado, 11 Phil. 154), with the determination of its period taking into
consideration on the nature of the obligation and circumstances (Art. 1197.).
-Adapted. (De Leon, 2010)
WHEN OBLIGATION IS DEMANDABLE AT ONCE

1. when it is pure;
2. when it is subject to a resolutory condition; or
3. when it is subject to a resolutory period.
CHARACTERISTICS OF A CONDITION
1. Future and uncertain.
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2. Past but unknown – the event has already happened but the parties do not know yet
of its occurrence.
Example: Sol and Andy are in a litigation as claimants of the same lot. Although
the Supreme Court has already held Sol as the rightful owner, he has not yet received
the notice that he had won the case. Now, Sol obliged himself to sell the land to Brent
in case he is the suit against Andy. In this case, upon receipt of the notice that he had
won the case against Andy, Sol is obliged to sell the land to Brent.
TWO PRINCIPAL KINDS OF CONDITIONS

1. SUSPENSIVE CONDITION (condition precedent or condition antecedent) - one
the fulfillment of which will give rise to an obligation (or right).
2. RESOLUTORY CONDITION (condition subsequent) - one the fulfillment of which

will extinguish an obligation (or right) already existing.
CONDITIONAL OBLIGATION – an obligation which depends upon a future or uncertain

event, or upon a past event unknown to the contracting parties; an obligation subject to
a condition.
a. SUSPENSIVE OBLIGATION – the fulfillment of the condition gives rise to an

obligation; the demandability of the obligation or the effectivity of the contract can take
place only after the condition has been fulfilled.
Example: I will give you P500,000 if you pass the next year’s CPA licensure
examination.
b. RESOLUTORY OBLIGATION – its happening extinguishes the obligation which is

already existing.
Example: A lease contract expressly stipulates that Robert, lessor, may terminate
the lease in case his children shall need the leased premises. Here, the happening of
the condition depends upon the will of a third person — Robert’s children.
Article 1180. When the debtor binds himself to pay when his means permit
him to do so, the obligation shall be deemed to be one with a period, subject to
the provisions of Article 1197.
INDICATIONS OF A TERM OR PERIOD

When the debtor binds himself to pay:
1. “when his means permit him to do so”;
2. “little by little”;
3. “as soon as possible”;
4.”from time to time”;
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5. “as soon as I have the money”;
6. “in partial payments”;
7.” when I am in a position to pay”.
Article 1181. In conditional obligations, the acquisition of rights, as well as

the extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
• This article reiterates the distinction between a suspensive (or antecedent)

condition and a resolutory (or subsequent) condition.
Article 1182. When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code.
CLASSIFICATIONS OF CONDITIONS
1. As to effect:
a. SUSPENSIVE - the happening of the condition gives rise to the obligation; and
Example: If you top in your class, I will give you a brand new cellphone.
b. RESOLUTORY - the happening of the condition extinguishes the obligation.
Example: I will give you my house located in Manila now, but if you are
reassigned by your company to Davao City, you will return it to me.
2. As to form:
a. EXPRESS - the condition is clearly stated; and
b. IMPLIED - the condition is merely inferred.
3. As to possibility:
a. POSSIBLE - the condition is capable of fulfillment, legally and physically; and
b. IMPOSSIBLE - the condition is not capable of fulfillment, legally or physically.
4. As to cause or origin:
a. POTESTATIVE – suspensive in character; the condition depends upon the will
of one of the contracting parties;
b. CASUAL – valid, the condition depends upon chance or upon the will of a third
person; and
c. MIXED - the condition depends partly upon chance and partly upon the will of
a third person;valid
5. As to mode:
a. POSITIVE - the condition consists in the performance of an act; and
b. NEGATIVE - the condition consists in the omission of an act.
6. As to number:
a. CONJUNCTIVE - there are several conditions and all must be fulfilled; and
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b. DISJUNCTIVE - there are several conditions and only one or some of them
must be fulfilled.
7. As to divisibility:
a. DIVISIBLE - the condition is susceptible of partial performance; and
b. INDIVISIBLE - the condition is not susceptible of partial performance.
POTESTATIVE CONDITION - is a condition suspensive in nature and which depends

upon the sole will of one of the contracting parties.
a. Dependent solely upon the will of the debtor – obligation is void.
Examples:
1. “I will pay you if I want.”
2. “I will pay you after I receive a loan from a bank.”
3. “I will pay you after I recover what Donna owes me.”
b. Dependent exclusively upon the will of the creditor – valid obligation.

Example: “I will pay you my indebtedness upon your demand.”
c. Pre-existing obligation with a void condition - only the condition is void, the
obligation is valid.
Example: Donna borrowed P20,000.00 from Ciara payable within two (2) months.
Subsequently, Donna promised to pay Ciara “after Donna sells her car” to which Ciara
agreed. In this case, only the condition is void but not the pre-existing obligation of
Donna to pay Ciara
d. Resolutory condition dependent solely on the will of the debtor – valid.
Example: right to repurchase in a sale with pacto de retro
Article 1183. Impossible conditions, those contrary to good customs or

public policy and those prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible, that part thereof which is not
affected by the impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not

having been agreed upon.
• This article refers to suspensive conditions and applies only when impossibility
already existed when the obligation was constituted, not if the impossibility arises
after the existence of the obligation.
POSSIBLE CONDITION – if it is capable of realization or actualization according to

nature, law, public policy or good customs.
IMPOSSIBLE CONDITION – if it is not capable of realization or actualization, legally or

physically.
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2 KINDS OF IMPOSSIBLE CONDITIONS
1. PHYSICALLY IMPOSSIBLE – cannot exist or cannot be done in its nature;
Examples:
1. To make a dead man alive;
2. To make a circle which is a square at the same time.
2. LEGALLY IMPOSSIBLE – contrary to law, good customs, or public policy.
GENERAL RULES ON IMPOSSIBLE CONDITIONS

a. If the condition is impossible. – it shall annul the obligation which depends upon
them; both the obligation and the condition are void.
b. If the obligation is divisible, its part which is not affected by the impossible
condition is valid.
Example: “I will give you P100,000.00 if you sell my car, and a house and lot, if
you kill Petra.”
The obligation to give P100,000.00 is valid but the obligation to give a house and
lot is void because it is dependent upon an impossible condition.
b. Pre-existing obligation with impossible condition – the obligation is valid, only

the condition is void.
Example: Drake owes Caleb P20,000.. If Caleb later agreed to kill Mark before
Drake pays him, the condition “to kill Mark” is void but not the pre-existing obligation of
Drake “to pay Caleb.”
c. Obligation with a negative impossible condition – the condition is disregarded

and the obligation is considered pure and valid.
NEGATIVE IMPOSSIBLE CONDITION – the obligation not to do an impossible thing.
Article 1184. The condition that some event happen at a determinate time
shall extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place.
• It refers to a positive suspensive condition.
POSITIVE SUSPENSIVE CONDITION - the happening of an event at a determinate

time. The obligation is extinguished as soon as:
1. the time expires without the event taking place; or
2. it has become unquestionably clear that the event will not take place although the
time specified has not yet expired.
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Example: Axel obliges himself to give Bruno P100,000.00 if Bruno will marry
Wanda before Bruno reaches the age of 25.
1. Axel is liable if Bruno marries Wanda before Bruno reaches the age of 25.
2. Axel is not liable if Bruno marries Wanda at the age of 25 or after he reaches the age
of 25. In this case, the time specified, before reaching the age of 25, has expired without
the condition (marrying Wanda) being fulfilled. The obligation is extinguished as soon as
Bruno becomes 25 years old.
3. If Bruno dies at the age of 22 without having married Wanda, the obligation is
extinguished because it has become indubitable that the condition will not take place. In
this case, the obligation of Axel is deemed extinguished from the death of Bruno,
although the time specified (before reaching the age of 25) has not yet expired.
Article 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such
time as may have probably been contemplated, bearing in mind the nature of the
obligation.
NEGATIVE SUSPENSIVE OBLIGATION - The obligation shall become effective and

binding from the moment:
1. the time indicated has elapsed without the event taking place;
2. from the moment it has become evident that the event cannot occur, although
the time indicated has not yet elapsed.
Example: Axel binds himself to give Bruno P100,000.00 if Bruno is not yet married to
Wanda on July 15, 2019.
1. Axel is not liable to Bruno if Bruno marries Wanda on July 15, 2019 or prior thereto.
2. Axel is liable to Bruno if on July 15, 2019 Bruno is not married to Wanda or if Bruno
marries Wanda after July 15, 2019. In the latter case, the condition (not marrying W) is
fulfilled upon the expiration of the time indicated, which is July 15, 2019.
3. Suppose Wanda dies on July 1, 2019 without having been married to Bruno. The
obligation is rendered effective because it is certain that the condition not to marry
Wanda will be fulfilled. In this case, the obligation becomes effective from the moment
of Wanda’s death on July 1 although the time indicated (July 15) has not yet elapsed.
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ARTICLE 1184 VERSUS ARTICLE 1185
ARTICLE 1184 ARTICLE 1185

(POSITIVE SUSPENSIVE) (NEGATIVE SUSPENSIVE)
Amir obliges himself to give Farah Amir obliges himself to give Farah
P50,000 if she would pass the CPA P50,000 if she has not yet passed the
licensure exam (CPALE) on or before CPA licensure exam by December 30,
December 30, 2019. 2019.
a. Amir is liable if Farah passes the a. Amir is not liable if Farah passes the
CPALE on or before December 30, 2019. CPALE on or before December 30, 2019.
b. Amir is not liable if Farah passes the b. Amir is liable if Farah passes the
CPALE after December 30 CPALE only after December 30, 2019.
c. If Farah dies before December 30 c. If Farah dies without passing the

without passing the CPALE, the CPALE on or before December 30, the
obligation is EXTINGUISHED. obligation is deemed FULFILLED.
Article 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
• It refers to the DOCTRINE OF CONSTRUCTIVE FULFILLMENT .

• Compare with Art. 1203,
REQUISITES FOR ITS APPLICATION

1. The condition is suspensive;
2. The obligor actually prevents the fulfillment of the condition; and
3. He acts voluntarily.
• The law does not require that the obligor acts with malice or fraud as long as his
purpose is to prevent the fulfillment of the condition.
Example: Ali agreed to give a 5% commission to Brianna if the latter could sell
the former’s land at a certain price. Brianna found a definite buyer willing to agree to the
terms prescribed by Ali. To avoid having to pay the commission promised, Ali himself
sold to the buyer the property at a lower price without the aid of Brianna.
In this case, one can say that the due performance by Brianna of her
undertaking, the condition for the payment of the commission, was purposely prevented
by Ali, and is deemed fulfilled.
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RESOLUTORY CONDITION - Article 1186 may also be applied to an obligation subject

to a resolutory condition with respect to the debtor who is bound to return what he has
received upon the fulfillment of the condition.
Example: Allan allowed Boni to occupy the former’s house in Cebu City as long
as Alan is assigned by their company in Davao City. When Boni learned that Allan
would be transferred to Cebu City, he was able to induce the president of the company
to assign another person in place of Allan.
The obligation of Allan is extinguished because the fulfillment of the resolutory

condition was voluntarily prevented by Boni. Hence, Boni must vacate the house.
-Adapted (De Leon, 2010)
Article 1187. The effects of a conditional obligation to give, once the

condition has been fulfilled, shall retroact to the day of the constitution of the
obligation. Nevertheless, when the obligation imposes reciprocal prestations
upon the parties, the fruits and interests during the pendency of the condition
shall be deemed to have been mutually compensated. If the obligation is
unilateral, the debtor shall appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it should be inferred that the
intention of the person constituting the same was different.
In obligations to do and not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
• Applies only to fulfilled suspensive conditions.
RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITIONS

1. IN OBLIGATION TO GIVE - its effects shall retroact to the day when the obligation
was constituted.
Example: On May 10, Sandy agreed to sell his parcel of land to Brandy for
P200,000.00 should Brandy lose a case involving the recovery of another parcel of land.
On July 20, Sandy sold his land to Candy. Brandy lost the case on September 30.
Before September 30, Brandy had no right to demand the sale of the land by
Sandy. When the condition, however, was fulfilled on September 30, it is as if Brandy
was entitled to the land beginning May 10. Hence, as between Brandy and Candy,
Brandy will have a better right over the land. (It is required, however, under the Property
Registration Decree [Pres. Decree No. 1529, Sec. 51.], that the promise of Sandy be
annotated on the back of the certificate of title of the property to be binding against third
persons like Candy.)
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If the land was sold by Brandy to Dandy on August 30, Dandy would still have a
better right as against Candy since the sale by Brandy will be considered valid.
2. IN RECIPROCAL OBLIGATION TO GIVE – no reciprocity as to fruits and interest as

they are deemed mutually compensated, unless based on the nature and
circumstances of the obligation it should be inferred that the intention of the person
constituting the same was different.
3. IN OBLIGATIONS TO DO OR NOT TO DO – the principle of retroactivity still applies

though no fix rule is given, subject to the courts’ discretion and considering the intent of
the parties to determine if there should be reciprocity or not.
4. IN UNILATERAL OBLIGATION - the debtor shall appropriate the fruits and interests
received because he does not receive any equivalent or valuable consideration from the
obligee.
Article 1188. The creditor may, before the fulfillment of the condition, bring
the appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake
in case of a suspensive condition.
RIGHTS PENDING FULFILLMENT OF SUSPENSIVE CONDITION

1. RIGHTS OF THE CREDITOR - he has the right to prevent the alienation or
concealment of the property of the debtor or to have his right annotated in the registry of
property.
2. RIGHTS OF THE DEBTOR - to recover what he has paid by mistake before the
happening of the suspensive condition- a case of solutio indebiti.
Article 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes, or goes out
of commerce, or disappears in such a way that its existence is unknown or it
cannot be recovered;
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(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for
damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other

right than that granted to the usufructuary.
REQUISITES FOR APPLICABILITY OF ARTICLE 1189

1. The obligation is a real obligation;
2. The object is a specific or determinate thing;
3. The obligation is subject to a suspensive condition;
4. The condition is fulfilled; and
5. There is loss, deterioration, or improvement of the thing during the pendency of the
happening on one condition.
KINDS OF LOSS
1. PHYSICAL LOSS - when a thing perishes.
Example: when a house is burned and reduced to ashes
2. LEGAL LOSS - when a thing goes out of commerce.

Example: when it is expropriated; when a thing heretofore legal becomes illegal
3. CIVIL LOSS - when a thing disappears in such a way that its existence is unknown;
or even if known, it cannot be recovered, as a matter of fact or as a matter of law.
RULES IN CASE OF:

A. LOSS
1. DEBTOR WITHOUT FAULT – obligation is extinguished.
Example: Doy obliged himself to give Cai his jeepney worth P200,000.00 if Cai
sells Doy’s land. The jeepney was lost without the fault of Doy.
The obligation is extinguished and Doy is not liable to Cai even if Cai sells the lot.
A person, as a general rule, is not liable for a fortuitous event.
2. DEBTOR WITH FAULT – obligation to pay damages.
Example: In the above same example, if the loss occurred because of the
negligence of Doy, Cai will be entitled to demand damages, like P200,000.00 plus
incidental damages, if any.
B. DETERIORATION
1. DEBTOR WITHOUT FAULT – impairment is to be borne by the creditor.
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Example: If the jeep figured in an accident, as a result of which its paints were
scratch and its bumper was broken without the fault of Doy, resulting to reduced value
of P175,000, Cai will have to suffer the deterioration of impairment in the amount of
P25,000.00
2. DEBTOR WITH FAULT – creditor chooses:

a. Rescission (cancellation) of obligation with damages.
Example: Doy is liable to pay P200,000.00, value of the jeepney before its
deterioration plus incidental damages, if any.
b. Fulfillment with indemnity for damages.

Example: Doy is bound to Cai to give the jeepney and pay P25,000.00
plus incidental damages, if any.
C. IMPROVEMENT
1. BY NATURE OR TIME – improvement: inure to the benefit of the creditor.
Example: Suppose the market value of the jeepney increased, who gets the
benefit? The improvement shall inure to the benefit of Cai. Inasmuch as Cai would
suffer in case of deterioration of the jeepney through a fortuitous event, it is but fair that
he should be compensated in case of improvement of the jeepney instead.
2. AT THE EXPENSE OF THE DEBTOR – debtor the right granted to a usufructuary.

Example: During the pendency of the condition, Doy had the car painted and its
seat cover changed at his expense. In this case, Doy will have the right granted to a
usufructuary with respect to improvements made on the thing held in usufruct.
Article 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties upon the fulfillment of said
conditions, shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the

provisions which, with respect to the debtor, are laid down in the preceding
article shall be applied to the party who is bound to return.
As for obligations to do and not to do, the provisions of the second

paragraph of Article 1187 shall be observed as regards the effect of the
extinguishment of the obligation.
EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION.

1. IN OBLIGATIONS TO GIVE - the obligation is extinguished and the parties are
obliged to return to each other what they have received under the obligation., including
fruits and interests
19
Example: Debby obliges herself to allow Carrie to use the former’s apartment
until Debbie returns from abroad. Upon the return of Debbie from abroad, Carrie must
give back the apartment.
2. IN OBLIGATIONS TO DO OR NOT TO DO – retroactivity is subject to the court’s

discretion, taking into consideration the circumstances of each case.
Article 1191. The power to rescind obligations is implied in reciprocal ones,

in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons

who have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
• Article 1191 applies only if the reciprocity arises from the same cause.
RECIPROCAL OBLIGATIONS - are those which arise from the same cause and in
which each party is a debtor and creditor of the other.
Example: In a contract of sale without any stipulation, the delivery of the thing
sold by the seller is dependent upon the simultaneous payment of the purchase price by
the buyer, and vice versa (see Art. 1169, last par.).
The seller is the creditor as to the price and debtor as to the thing, while the
buyer is the creditor as to the thing and debtor as to the price.
NON-RECIPROCAL OBLIGATIONS – the performance of one party is not dependent

upon the simultaneous performance by the other.
Example: Dina borrowed from Claire P50,000.00. Claire, on the other hand,
borrowed Dina’s computer. The performance by Dina of her obligation to Claire is not
conditioned upon the performance by Claire of her obligation and vice versa.
Although Dina and Claire are debtors and creditors of each other, their
obligations are not reciprocal. The obligation of Dina arises from the contract of loan,
20
while that of Claire, from the contract of commodatum. The obligations are not
dependent upon each other and are not simultaneous.
- Adapted, (De Leon, 2010)
TWO REMEDIES IN CASE OF BREACH IN A RECIPROCAL OBLIGATION

1. action for specific performance (fulfillment) of the obligation with damages; or
2. action for rescission of the obligation also with damages.
Example: In a contract of sale of a computer between Selina and Belinda, it was

agreed that Selina, the owner, would deliver the computer to Belinda at the house of
Carina on June 1, and Belinda would deliver the payment at the same place and on the
same date.
If Selina does not comply with her obligation:

a. Belinda may, in an action for specific performance, demand the delivery of the
computer with damages; or
b. Belinda may demand from the court the rescission of the contract also with damages.
-Adapted. (DeLeon, 2010)
RESCISSION - not merely termination but annulment of contract and restoration of the
parties to their prior positions as if there was never any contract made.
• Only the injured party can rescind a contract without violating the principle of
mutuality of contracts.
• The right to rescind may be exercised even in the absence of any stipulation
giving the right should the other obligor fail to comply with his obligation, it being
unjust that be held bound to fulfill his undertakings when the other violates his.
• Existence of economic prejudice not required.
• The principal action for rescission for non-performance under Article 1191 is
different from the subsidiary action for rescission by reason of lesion or damage
under Article 1381.
• Article 1385 applies to rescission of reciprocal obligations under Article 1191. The
applicability of Article 1191 is subject to other provisions of law.
Article 1192. In case both parties have committed a breach of the

obligation, the liability of the first infractor shall be equitably tempered by the
courts. If it cannot be determined which of the parties first violated the contract,
the same shall be deemed extinguished, and each shall bear his own damages.
BOTH PARTIES ARE GUILTY OF BREACH BUT:
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1. FIRST INFRACTOR IS KNOWN - The liability of the first infractor should be fairly
reduced.
Example: If a bank failed to release the entire approved loan but the borrower
also failed to pay the partial loan release he received after it fell due, both are in default
and their respective liability for damages shall be offset equitably, exclusive of the
interest due on the overdue loan portion since the borrower derived benefit for its
use(see Central Bank of the Phils. vs. Court of Appeals, 139 SCRA 46 [1985].)

.
2. FIRST INFRACTOR CANNOT BE DETERMINED - The court shall declare the
extinguishment of the obligation and each shall bear his own damages.
Section 2- Obligation With A Period
Article 1193. Obligations for whose fulfillment a day certain has been fixed,
shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain.
A day certain is understood to be that which must necessarily come,

although it may not be known when.
If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the preceding
Section.
OBLIGATION WITH A PERIOD - is one whose consequences are subjected in one way
or another to the expiration of said period or term.
PERIOD - It is a day certain which must necessarily come, although it may not be
known when, like the death of a person.
Example: like the year 2020; next New Year
DIFFERENCES BETWEEN PERIOD AND CONDITION

BASIS PERIOD CONDITION
AS TO FULFILLMENT A certain event An uncertain event
AS TO TIME Refers only to the future May refer to past event
unknown to the parties
AS TO INFLUENCE ON Merely fixes the time for the Causes an obligation to
THE OBLIGATION efficaciousness of the arise or to cease
oblige
AS TO EFFECT, WHEN Empowers the court to fix Invalidates the obligation
LEFT TO DEBTOR’S WILL the duration thereof
AS TO RETROACTIVITY No retroactive effect Has retroactive effect
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OF EFFECTS
• Like a condition, a period must be possible. If the period is impossible, the

obligation is void.
KINDS OF PERIOD OR TERM.

1. According to effect:
a. SUSPENSIVE PERIOD (ex die) - The obligation begins only from a day
certain upon the arrival of the period; and
Example: “I will pay you 30 days from today.” In this case, only its demandability
is suspended, not the obligation itself.
b. RESOLUTORY PERIOD (in diem) - The obligation is valid up to a day certain

and terminates upon the arrival of the period.
Example: “I will provide for your needs until end of this year.”
2. According to source:
a. LEGAL PERIOD - When it is provided for by law;
b. CONVENTIONAL OR VOLUNTARY PERIOD - When it is agreed to by the
parties; and
c. JUDICIAL PERIOD - When it is fixed by the court
3. According to definiteness:
a. DEFINITE PERIOD - When it is fixed or it is known when it will come; and
b. INDEFINITE PERIOD - When it is not fixed or it is not known when it will come.
• Where the period is not fixed but a period is intended, the courts are usually
empowered by law to fix the same.
Article 1194. In case of loss, deterioration or improvement of the thing before

the arrival of the day certain, the rules in Article 1189 shall be observed.
Article 1195. Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the obligation has become
due and demandable, may be recovered, with the fruits and interests.
• Applies only to obligations to give. It is similar to Article 1188, paragraph 2.

• Debtor has the burden of proving that he was unaware of the period.
• The obligor may no longer recover the thing or money once the period has
arrived but he can recover the fruits or interests thereof from the date of
premature performance to the date of maturity of the obligation.
Example: Dani owes Cecille P5,000.00 which is due on June 30 this year. By
mistake, Dani paid his obligation on June 30 last year. Assuming that today is January
1, Dani can recover the P2,000.00 plus P120.00, which is the interest for one half year
23
at the legal rate of 12% or a total of P2,120.00. But Dani cannot recover, except the
interest, if the debt had already matured.
Neither can there be a right to recovery if Dani had knowledge of the period. The
theory under solutio indebiti obviously will not apply. Dani is deemed to have impliedly
renounced the period.
NO RECOVERY IN PERSONAL OBLIGATIONS

• POSITIVE PERSONAL OBLIGATION – because it is physically impossible to
recover the service rendered.
• NEGATIVE PERSONAL OBLIGATION - as the obligor performs by not doing, he

cannot, of course, recover what he has not done.
Article 1196. Whenever in an obligation a period is designated, it is

presumed to have been established for the benefit of both the creditor and the
debtor, unless from the tenor of the same or other circumstances it should
appear that the period has been established in favor of one or of the other.
PRESUMPTION AS TO BENEFIT OF THE PERIOD – for the benefit of both the debtor
and the creditor. In other words, the debtor may not fulfill the obligation and neither may
the creditor demand its fulfillment without the consent of the other, before the period
expires.
• It is just a rebuttable presumption.
• EXCEPTION: When it appears that the period is for the benefit of one or the
other.The benefit of the term may be the subject of stipulation of the parties.
o TERM IS FOR THE BENEFIT OF THE DEBTOR ALONE – he cannot be

compelled to pay prematurely, but he can if he desires to do so.
Example: Alma obliges herself to pay Bert within 5 years. Alma cannot be
compelled to pay prematurely, but she can pay anytime within 5 years (A will benefit
because she can pay anytime she wants as long as it is within 5 years; Bert will not
benefit from the interests if A decides to pay early.
o TERM IS FOR THE BENEFIT OF THE CREDITOR – He may demand

fulfillment even before the arrival of the term but the debtor cannot require
him to accept payment before the expiration of the stipulated period.
Example: Alma borrows money from Bert and is obliged to make the payment on
December 5. Bert may compel Alma to make the payment before December 5, but
Alma may not compel Bert to receive the payment before December 5 (Bert will benefit
from the interests that will accrue before December 5.)
24
Article 1197. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended, the courts may
fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon
the will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them.
• If the obligation does not state a period and no period is intended, the court is not
authorized to fix a period. The courts have no right to make contracts for the
parties.
INSTANCES WHEN COURT WILL FIX A PERIOD

1. When no period is mentioned, but it is inferable from the nature and
circumstances of the obligation that a period was intended by the parties.
Example: Ador enterd into a contract agreeing to repair the cellphone of Benjoe.
The parties were not able to agee on the period when the repair is to be made. In this
case, the court can determine the term for it is obvious that the parties intended that
Ador should fix the cellphone within a certain period (see Concepcion vs. People, 74
Phil. 63 [1942].).
2. When the period is dependent upon the will of the debtor.

Example: The court may fix the term of the lease if the contract of lease simply
states that the lessee can continue renting the unit so long as the tenant pays the
stipulated rent. (see Yu Chin Piao vs. Lim Tuaco, 33 Phil. 92 [1915].).
• The court must fix the duration of the period to prevent the possibility that the
obligation may never be fulfilled or to cure a defect in a contract whereby it is
made to depend solely upon the will of one of the parties.
WHEN COURT CANNOT FIX A PERIOD

1. If there is a period agreed upon by the parties and it has already lapsed or expired.
2. From the very moment the parties give their acceptance and consent to the period
fixed by the court, it becomes a law governing their contract.
Article 1198. The debtor shall lose every right to make use of the period:
(IGIVA)
(1) When after the obligation has been contracted, he becomes insolvent,
25
unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking inconsideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond.
• This article is an exception to the general rule that the obligation is not claimable
before the end of the period.
• If any of the five exceptions stated in this article happens, the debtor loses the
right to use the period given him, thus his becomes pure and immediately
demandable.
I – INSOLVENCY:
Example: Drex owes Cole P200,000.00 due and payable on March 25. If Drex
becomes insolvent, say on January 15, Cole can demand immediate payment from
Drex even before maturity unless Drex gives sufficient guaranty or security.
• The insolvency need not be judicially declared. It is sufficient that the debtor’s
assets are less than his liabilities or he cannot pay his debts because of lack of
resources.
• The insolvency of debtor must occur after the obligation has been contracted.
G – GUARANTIES/SECURITIES NOT FURNISHED

Example: Suppose in the same case above, Drex promised to mortgage his car
to secure the debt. If he fails to furnish said security as promised, he shall lose his right
to the period.
I – IMPAIRMENT/DISAPPEARANCE OF GUARANTIES OR SECURITIES

Example: If the debt is secured by a mortgage on the car of Drex, but the car was
damaged through his fault, the obligation also becomes demandable unless Drex gives
a new security equally satisfactory.
• IMPAIRMENT - If security was lost through debtor’s fault.
• DISAPPEARANCE - If security was lost through fortuitous event.
V - VIOLATION OF UNDERTAKING
26
Example: If, for instance, Cole agreed to the period in exchange for the promise of
Drex to repair his computer, free of charge. If Drex violates his promise, Cole has the
right to demand immediate payment of the loan.
• The undertaking must be the reason for the creditor to agree with such period.
A – ATTEMPTS TO ABSCOND
Example: Before the due date of the obligation, Drex changed his address
without informing Cole and with the intention of escaping from his obligation. This act of
Drex is a sign of bad faith which results in the loss of his right to the benefit of the period
stipulated.
• Mere attempt to abscond is enough as it is an indication of bad faith.
- Adapted. (De Leon, 2010)
WHEN AGREED PERIOD CANNOT BE CHANGED BY THE COURT

1. When the period agreed upon by the parties has already lapsed or expired.
2. When the parties already accepts and consents to the period fixed by the court, it
cannot be changed anymore as it is now a binding contract between them. (Barretto vs.
City of Manila, 11 Phil. 624 [1908].) But the parties may enter into a new agreement to
modify the term.
Article 1199. A person alternatively bound by different prestations shall

completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the
other undertaking.
ALTERNATIVE OBLIGATION - is one wherein various prestations are due but the
performance of one of them is sufficiently determined by the choice which, as a general
rule, belongs to the debtor.
Example: Don owes Clint P20,000. They both agreed that as payment, Don
could give Clint P20,000, or a brand new computer, or by making the gate of Clint.
The delivery of the P20,000, or a brand new computer, or the making of the gate
of C, is enough to settle the obligation.
• Performance must be complete.
Article 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.
27
The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the obligation.
RIGHT OF CHOICE OF PRESTATION

1. GENERAL RULE: It belongs to the debtor.
2. EXCEPTIONS:
• It may be exercised by the creditor - only when expressly granted to him(Art.
1205.),
• It may be exercised by a third person – only if the right is given to him by
common agreement(Art. 1306.) .
Example: Saul promised to give Bella a ring or a necklace on April 15 and to

inform her of his choice on or before April 10.
Suppose Saul delays in making his preference known, Bella cannot choose since
she was not expressly allowed to do so. However, the court can give the right of choice
to Bella.
LIMITATIONS TO THE DEBTOR’S RIGHT TO CHOOSE THE PRESTATION

1. The debtor cannot choose those prestations which are:
a. Impossible,
b. unlawful, or
c. which could not have been the object of the obligation.
o These prestations are void.
o If there are other valid undertakings aside from a-c above, debtor still has
the right to choose but he can only choose those prestations which are
free from said defects.
o If only 1 prestation is left from among the several alternative choices, the
debtor loses the right to choose and the obligation is converted into a
simple one.
2. The chosen prestation must be delivered in whole.
Article 1201. The choice shall produce no effect except from the time it has
been communicated.
• Communication of chosen prestation turns the alternative obligation into a simple

one.
• After communication of chosen prestation, the choice becomes irrevocable and,
therefore, cannot be repudiated.
28
PROOF OF NOTICE – is upon him who made the choice.
FORM OF NOTICE – no required particular form; may be orally or in writing, expressly

or impliedly.
Article. 1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable.
Article 1203. If through the creditor’s acts the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the contract with
damages.
• This article contemplates a situation in which the debtor becomes unable to pick
a prestation from among the alternative options, in congruence to their
agreement, because of the fault of the creditor. The debtor is allowed to rescind
the contract and demand damages, although he is not obliged to do so.
Example: Dominic owes Cain P30,000.00. They agreed that instead of paying
P30,000.00, Dominic could deliver a refrigerator, or a TV, or a personal computer.
If the refrigerator is destroyed because of the fault of Cain, Dominic can rescind
the contract if he wants. If he chooses to rescind the agreement, he has to return to
Cain the P30,000.00, with interest. Cain, on the other hand, must pay Dominic the value
of the refrigerator plus damages.
Instead of rescinding the contract, Dominic may choose to deliver the TV or the
personal computer, with a right to recover the value of the refrigerator with damages. If
Dominic chooses the refrigerator, his obligation is extinguished. Cain is not liable for
damages.
Article 1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which are alternatively the object of
the obligation have been lost, or the compliance of the obligation has become
impossible.
The indemnity shall be fixed taking as a basis the value of the last thing
which disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be
awarded.
EFFECTS OF LOSS/IMPOSSIBILITY OF THE PRESTATION
29
1. IF ONLY SOME OF THE OBJECTS WERE LOST - even if because of the fault of
the debtor, he is not liable for damages (for he has the right of choice and the obligation
can still be performed).
2. IF ALL OF THE OBJECTS WERE LOST –

a. if due to debtor’s fault, the creditor has a right to damages (since the obligation
can no longer be complied with).
b. If due to a fortuitous event - the obligation is extinguished.
“or the compliance of the obligation has become impossible” - refers to obligations
“to do.”
Example: Sonny agreed to deliver a ring, or a bracelet, or a necklace. If the ring

is lost through the fault of Sonny, he can still select either the bracelet or the necklace.
The loss of the ring and the bracelet with or without the fault of Sonny will reduce
the obligation to a simple one.
Sonny is liable for damages if all the items are lost due to his negligence. If they
disappeared because of fortuitous event, the obligation will be extinguished.
BASIS OF INDEMNITY – last thing which disappeared.

• Other damages may also be awarded.
Example: In the case above, if the ring and the bracelet are lost, Sonny will be
bound to deliver the necklace.
If later on, the necklace is also lost through the fault of Sonny, the value of the
indemnity for damages will be based on its value since Sonny would have been bound
to deliver it had it not also disappeared. The liability of Sonny is not affected although
the loss of the ring and the necklace was through a fortuitous event.
If the necklace was lost without the fault of Sonny, his obligation is extinguished
and he shall not be liable for damages although the loss of the ring and the bracelet was
due to his fault. The reason is that after the los of the first two items, the obligation is
converted into a simple one to deliver the necklace.
Article 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection has been
communicated to the debtor.
30
Until then the responsibility of the debtor shall be governed by the
following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform
the obligation by delivering that which the creditor should choose from among
the remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the
creditor may claim any of those subsisting, or the price of that which, through the
fault of the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the
creditor shall fall upon the price of any one of them, also with indemnity for
damages.
The same rules shall be applied to obligations to do or not to do in case

one, some or all of the prestations should become impossible.
• This article applies only when the right of choice has been expressly granted to
the creditor.
• Before the creditor makes the selection, the debtor cannot incur in delay.
RULES IN CASE OF LOSS OF THING BEFORE CHOICE IS MADE

1. If only one thing lost - (due to fortuitous event) creditor chooses from the remainder,
then debtor delivers the choice to creditor;
2. If only one remains – debtor delivers the same to the creditor;
3. If only one thing lost – (due to fault of the debtor)

a. Creditor may choose any one of the remainders;
b. Creditor may choose the price or value of the one which was lost;
c. Creditor may choose a or b plus damages.
4. If all things were lost – (due to fault of the debtor) creditor may choose the price of
anyone of the things, with damages if warranted.
• The same rules shall be applied to obligations to do or not to do in case one,

some or all of the prestations should become impossible.
Examples:
1. IF LOST THROUGH A FORTUITOUS EVENT -
Example:: Samson obliged himself to deliver to Brandie a ring, or a bracelet or
item, or a necklace. If the ring is lost through a fortuitous event, Brandie can choose
from among the remainder or that which remains if two of the items are lost.
2. WHEN A THING IS LOST THROUGH DEBTOR’S FAULT –
31
Example: If the loss of the ring occurs through the fault of Samson, Brandie may
claim the bracelet or the necklace with a right to damages or the price of the ring also
with a right to damages.
3. WHEN ALL THE THINGS ARE LOST THROUGH DEBTOR’S FAULT -

Example: If all the items are lost through the fault of Samson, then Brandie can
demand the payment of the price of any one of them with a right to indemnity for
damages.
4. WHEN ALL THE THINGS ARE LOST THROUGH A FORTUITOUS EVENT -

Example: The obligation of Samson shall be extinguished if all the items which
are alternatively the object of the obligation are lost through a fortuitous event.
Article 1206. When only one prestation has been agreed upon, but the
obligor may render another in substitution, the obligation is called facultative.
The loss or deterioration of the thing intended as a substitute, through the

negligence of the obligor, does not render him liable. But once the substitution
has been made, the obligor is liable for the loss of the substitute on account of
his delay, negligence or fraud.
FACULTATIVE OBLIGATION - is one where only one prestation has been agreed
upon but the obligor may render another in substitution.
Example: “Sandra obliges herself to give Amarah a cellphone but she may give a
notepad instead as a substitute.”
In this obligation, only the cellphone is due. Hence, its loss through the fault of
Sandra will make her liable.
EFFECT OF LOSS OF PRINCIPAL THING

1. BEFORE SUBSTITUTION
a. If loss due to a fortuitous event - the obligation is extinguished.
b. If due to other reasons - the debtor is liable for damages.
2. AFTER SUBSTITUTION
a. Whatever may be the reason for the loss of the principal thing, the debtor is
not liable because it is no longer due.
b. If the substitute is lost, the liability of the debtor depends upon whether or not
the loss is due through his fault.
32
• Once the substitution is made, the obligation is converted into a simple one to
deliver or perform the substituted thing or prestation.
• The substitution becomes effective from the time it has been communicated.
Example (Based on the preceding example):
1. If the cellphone is lost with or without the fault of Sandra, Sandra is not liable for its
loss since her obligation is to deliver the notepad.
2. If the not notepad is lost through a fortuitous event, the obligation of Sandra is
extinguished.
3. If the notepad is lost through the fault of Sandra, Sandra is liable for damages.
Section 4 – Joint and Solidary Obligations
Article 1207. The concurrence of two or more creditors or of two or more

debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to render,
entire compliance with the prestations. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.
• Generally, the obligation is presumed to be joint if there are more than one
debtor or creditor, except when:
a. there is a provision in the contract that the obligation is solidary;
b. when the nature of the obligation dictates the liability to be solidary;
c. when the law states the obligation to be solidary
Article 1208. If from the law, or the nature or the wording of the obligations
to which the preceding article refers the contrary does not appear, the credit or
debt shall be presumed to be divided into as many equal shares as there are
creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits.
JOINT OBLIGATION – an obligation is divided proportionately into how many debtors

and/or creditors there are and each debtor is only liable to pay his share while each
creditor may only collect his part of the whole debt; (Art. 1208) .
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SOLIDARY OBLIGATION - is an obligation wherein each one of the debtors may be
made to comply, and/or each one of the creditors may exact complete fulfillment of the
obligation.(Art. 1207)
• If there are two or more debtors and/ or two or more creditors, and their
respective individual shares in the obligation are clearly defined, the division set
forth shall be followed.
Example: Annie, Bannie, and Carrie owe Dotty P18,000, and they agreed that
their respective share is P6,000.00 each (or some other value, could be unequal
amounts). As such, w know that Annie, Bannie, and Carrie are liable only for P6,000.00
each and that Dotty is not allowed to collect from each debtor more than her specified
share in the obligation.
If the share of each debtor (or the share of each creditor, if there are two or more
creditors) is not clearly provided in the agreement, the assumption is that the obligation
is joint and as such:
a. There are as many debts as there are debtors;
b. There are as many credits as there are creditors;
c. The debts and/or credits are considered distinct and separate from one
another;
d. Each debtor is liable only for a proportionate part of the debt; and
e. Each creditor is entitled only to a proportionate part of the credit.
OTHER WORDS FOR JOINT OBLIGATIONS

1. mancum;
2. mancomunada;
3. mancomunadamente;
4. pro rata;
5. proportionately, pro rata, jointly;
6. conjoint;
7. “we promise to pay” signed by two or more persons.
OTHER WORDS USED TO INDICATE SOLIDARITY

1. severally, jointly and/or severally;
2. solidaria;
3. in solidum;
4. solidarily;
5. together and/or separately;
6. individually and/or collectively;
7. juntos o suparadamente.
8. “I promise to pay” signed by two or more persons
9. “individually and jointly”
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10. “joint and several’’,“several.’’
KINDS OF SOLIDARITY
A. According to the parties bound:
1. PASSIVE SOLIDARITY – is solidarity on the part of the debtors, any of
debtors can be obliged to fulfill the whole obligation.
Example: Anna and Bea are solidary debtors of Carla in the amount of
P100,000.00. There are two debtors, and only one creditor in the same obligation.
Carla may collect from either Anna or Bea, or from both of them, at the same
time, the entire debt.
If either Anna or Bea pays the full obligation, it is extinguished. The debtor who
settles the loan may ask for reimbursement from the other borrower, based on their
agreement.
In any case, Carla cannot demand payment in excess of P100,000.00
2. ACTIVE SOLIDARITY - solidarity on the part of the creditors; any of the

creditors can exact the compliance of the whole obligation.
Example: Armond borrowed P100,000.00 from Bermont and Charmaine,

solidary creditors.
Armond may pay either Bermont or Charmaine. As long as the loan still has an
unpaid balance, Bermont and Charmaine can exact payment from Armond. The creditor
who is able to collect must give the other creditor her share of the payment received, in
accorandance with their agreement.
They can collect from Armond P100,000.00, the amount he borrowed..
3. MIXED SOLIDARITY – solidarity on both parts of the debtors and creditors;

each one of the debtors has to render, and each one of the creditors may exact,
complete fulfillment of the obligation.
Example: Alo and Brad are solidarily liable to Cody and Dirk, solidary creditors, in
the amount of P100,000.00.
Alo (or Brad) can pay either Cody or Dirk. Cody (or Dirk) can demand from either
Alo or Brad.
The payment by Alo (or Brad) of P100,000.00 to Cody (or Dirk) shall extinguish
the obligation.
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Alo (or Brad) can ask reimbursement from Brad (or Alo) in the amount of
P50,000.00 or such amount agreed upon between them.
Cody (or Dirk), in turn, is liable to give to Dirk (or Cody), the latter’s share of
P5,000.00 or the amount stipulated.
B. ACCORDING TO SOURCE:
1. CONVENTIONAL SOLIDARITY - where solidarity is agreed upon by the parties.
2. LEGAL SOLIDARITY - where solidarity is imposed by the law.
3. REAL SOLIDARITY - where solidarity is imposed by the nature of the obligation.
• Solidarity not presumed. If nothing is mentioned in the contract relating to

solidarity, the obligation is only joint. The reason is that solidary obligations are
very burdensome for they create unusual rights and liabilities.
Article 1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by
proceeding against all the debtors. If one of the latter should be insolvent, the
others shall not be liable for his share.
JOINT INDIVISIBLE OBLIGATION – joint for the debtors are only liable for their own
share in the whole obligation. . It is indivisible because the object or subject matter
Exampler: Alliah, Brielle and Cassie promised to jointly give Denise a computer
valued at P90,000.00. On the due date, Alliah and Brielle are willing to deliver but
Cassie is not.
Since Cassie, being just a joint-debtor, is only liable for her share of the value of
the compute in the amount of P30,0000, Denise has no cause of action against her.
The debt can only be collected by going against all the debtors because the
object (computer) is indivisible, compliance is not possible unless they act together. The
obligation is converted into one for damages.
Alliah, Brielle, and Cassie has to pay P30,000.00 each or a total of P90,000.00 ,
the value of the computer. Cassie, on the other hand, shall be also be liable for
damages to Denise for having violated the obligation.
If Alliah and Brielle suffered damages by reason of the non-fulfillment by Cassie,

they may also demand them from Cassie.
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insolvency of any of the debtors shall not make the rest liable for the insolvent
partner’s share. Denise must wait until the insolvent debtor can pay.
Article 1210. The indivisibility of an obligation does not necessarily give

rise to solidarity. Nor does solidarity of itself imply indivisibility.
BASIS INDIVISIBILITY SOLIDARITY

What it refers to Prestation Juridical tie/legal tie
Who is liable for damages Only the guilty debtor All the debtors are liable for
for breach of the obligation breach of 1 co-debtor
Existence in relation to Exist - even if 1 debtor and Needs at least 2 debtors or
number of debtor/creditor 1 creditor only 2 creditors for solidarity to
exist
Liability in case of Others are not liable The others are
insolvency of 1 debtor proportionately liable.
Article 1211. Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same periods and conditions.
KINDS OF SOLIDARY OBLIGATION ACCORDING TO THE LEGAL TIE

1. UNIFORM - when the parties are subject to the same stipulations or clauses; or
2. NON-UNIFORM OR VARIED - when the parties are not subject to the same
stipulations or clauses.
Example: Aria, Baila, Calla, and Dalia obliged themselves solidarily to pay Ella
P30,000.00, as follows:
Aria, to pay by installment at the rate of P3,000.00 a month, to start in January;

Baila, to pay in July; Caila, to pay in December; and Dalia, if Ella passes the CPA
licensure examinations.
In January, Ella can only collect the P3,000.00 share of Aria from Aria, Bella, Calla
and/or Dalia. However, Ella cannot demand yet the shares of Bella, Calla, and Dalia as
they are not yet due and demandable.
• Enforcement of the different terms and conditions may be made at different

times.
• The obligations which have matured can be enforced while those still undue will
have to be awaited.
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Article 1212. Each one of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to the latter.
• It refers to solidary creditors only.
• It is based on the theory of mutual agency among solidary creditors.
• If one of the solidary creditors performed an act which is prejudicial to the other
creditors which resulted to the extinguishment of the obligation, he shall be liable
to pay damages to the other creditors.
Example: Aliza solidarily owes Betty and Cathy, the amount of P20,000.00. Betty
may collect the amount due for this will benefit Cathy. However, if Betty condones
the liability of Aliza, the obligation will be extinguished, but Betty has to reimburse
Cathy for the latter’s share because Cathy cannot be prejudiced by the remission.
(Art. 1215).
Article 1213. A solidary creditor cannot assign his rights without the
consent of the others.
• Consent of the other creditors is necessary for a valid assignment by a solidary

creditor of his rights to third persons.
• Consent of the other creditors is not required anymore if the right will be assigned
to a co-creditor.
DOCTRINE OF MUTUAL AGENCY - In solidary obligations, the act of one is act of the
others.
Exceptions to the doctrine:

Art. 1212 – a creditor may not perform an act prejudicial to other creditors
Art. 1213 – a creditor cannot transfer his right without consent
Article 1214. The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extrajudicial, has been made by one of them, payment
should be made to him.
• If debtor pays any of the solidary creditors, such payment, when accepted by any
of the solidary creditors, will extinguish the obligation.
• However, when there is demand, judicial or extra-judicial, by any of the solidary

creditors, payment should be given to him. Otherwise, only the share of the other
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creditor-payee who received the payment will be xtinguished, in case he will not
give to the others their share.
• In case there are two or more demands made by different creditors, the first
demand must be given priority.
Article 1215. Novation, compensation, confusion or remission of the debt,

made by any of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them.
NOVATION – obligations are modified by:

1. Changing their object or principal conditions;
2. Substituting the person of the debtor; and
3. Subrogating (placing) a third person in the rights of the creditor.
COMPENSATION – takes place when two persons, in their own right, become creditors
and debtors of each other .
CONFUSION – or merger is the meeting in one person of the qualities of creditor and
debtor with respect to the same obligation.
REMISSION – the gratuitous abandonment by the creditor of his right; acceptance of

the obligor is necessary.
• These 4 modes of extinguishing obligations are acts prejudicial to the other

solidary co-creditors because these have the effect of extinguishing the debt or
obligation which is due to all of them.
• The one who committed any of these modes of extinguishment of an obligation

shall be liable for the shares corresponding to all his co-creditors.
IN JOINT OBLIGATION – each debtor or creditor’s share in an obligation is distinct and

independent of the others’ share, thus any modification or extinguishment on any share
will not affect the others’ share.
Article 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected.
IN PASSIVE SOLIDARITY - the creditor can proceed against:
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a. Any of the solidary debtors;
b. Some of the solidary debtors;
c. All of the solidary debtors, simultaneously.
• Initial demand will not prevent subsequent demands to the other creditors
if the first debtor required to pay was not able to fully settle the account.
Article 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose
which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made. If the
payment is made before the debt is due, no interest for the intervening period
may be demanded.
When one of the solidary debtors cannot, because of his insolvency,

reimburse his share to the debtor paying the obligation, such share shall be
borne by all his co-debtors, in proportion to the debt of each.
• Article 1217 refers to the effects of payment by one of the solidary debtors.
• Even if only one of the solidary debtors pay in full, the obligation is extinguished.
• The creditor may choose from whom to collect the debt.
• The payment by one of the solidary debtors only gives rise to the right for
reimbursement from his co-debtors, not subrogation.
• The amount to be reimbursed is only the share which corrresponds to each

debtor - only for their proportionate shares with legal interest only from the time
of payment.
Example: Alice, Berna, and Chariz are jointly and severally liable to Donna and
Ellen in the amount of P9,000.00 due on June 5.
a. If both Alice and Berna offer to pay Donna, on June 5, the latter may choose which
offer to accept. If Alice pays the entire amount of P9,000.00 on June 5, the obligation is
extinguished.
b. The payment by Alice gives her the right to demand reimbursement from Berna and
Chariz P3,000.00 each with interest from the date of payment. But Alice is not entitled to
reimbursement nor to interest for any payment made before June 5. The obligation of
Berna and Chariz to reimburse her with interest will arise only from June 5.
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c. If Chariz is insolvent, both Alice and Berna shall bear her insolvency in proportion to
their shares. Hence, Alice can still ask Berna to pay an additional sum of P1,500.00. Of
course, Alice and Berna can later on recover from Chariz should the latter’s finances
improve.
d. If, in the same example, Alice paid P6,400.00 and B, P2,600.00, Alice can recover
reimbursement only to the extent that her payment exceeds her share, so that Chariz is
liable to her for P3,000.00 and Berna, for P400.00. If Chariz is insolvent, Berna is liable
to pay Alice P1,900.00. A is not entitled to reimbursement if her payment is P3,000 or
less.
e. Donna, in the above example, has the obligation to give to Ellen her corresponding
share in the credit.
Article 1218. Payment by a solidary debtor shall not entitle him to

reimbursement from his co-debtors if such payment is made after the obligation
has prescribed or become illegal.
TWO INSTANCES WHEN PAYING DEBTOR CANNOT GET REIMBURSEMENT

When the obligation:
1. has prescribed; or
2. becomes illegal
PRESCRIPTION - one acquires ownership and other rights through the lapse of time in
the manner and under the conditions laid down by law. In the same way, rights and
actions are lost by prescription.
ACTIONS TO BE BROUGHT WITHIN TEN (10) YEARS:

1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment.
ACTIONS TO BE COMMENCED WITHIN SIX (6) YEARS:

1. Upon an oral contract;
2. Upon a quasi-contract.
ACTIONS TO BE INSTITUTED WITHIN FOUR (4) YEARS:

1. Upon an injury to the rights of the plaintiff;
2. Upon a quasi-delict.
Article 1219. The remission made by the creditor of the share which affects
one of the solidary debtors does not release the latter from his responsibility
towards the co-debtors, in case the debt had been totally paid by anyone of them
before the remission was effected.
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EFFECTS OF REMMISSION OR WAIVER:
1. AFTER PAYMENT – no effect as there is no more obligation to remit.
2. PRIOR TO PAYMENT - solutio indebiti arises.

It is incumbent upon the debtor whose debt is remitted, to prove the priority of the
remission to the payment to release him from responsibility towards his co-debtors.
Example: Ally and Bentley solidary owes Celine P10,000.00. Celine condones
Ally’s share before payment by Bentley of P10,000.00 to Celine .Bentley’s payment will
not entitle him to reimbursement from Ally for the condonation has extinguished the
obligation with respect to Ally’s share. However, Bentley can demand the return of
P5,000.00 from Celine under the principle of solutio indebiti.
Ally will still be liable to Bentley if payment by Bentley was made before the
remission, because the remission is without effect, the obligation having already been
extinguished by the payment.
Article 1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-debtors.
• This article applies only when the whole obligation is remitted.
• Remission is gratuitous (a donation) – the reason for the prohibition from

reimbursement from co-debtor.
ALLOWS RECOVERY FROM CO-DEBTORS :

a. novation;
b. compensation; or
c. confusion.
Article 1221. If the thing has been lost or if the prestation has become
impossible without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible to
the creditor, for the price and the payment of damages and interest, without
prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has

become impossible after one of the solidary debtors has incurred in delay
through the judicial or extra-judicial demand upon him by the creditor, the
provisions of the preceding paragraph shall apply.
RULES IIN DISAPPEARANCE/IMPOSSIBILITY OF
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PRESTATION IN SOLIDARY OBLIGATION
A. LOSS IS WITHOUT FAULT AND BEFORE DELAY (lost due to fortuitous event)
- obligation shall be extinguished.
Example: Arham, Bal, and Cid obliged themselves solidarily to deliver to Dan a
particular vehicle valued at P600,000.00.
The obligation shall be extinguished if the vehicle is lost or destroyed through a

fortuitous event without the fault of Arham, Bal, and Cid and before they have incurred
in delay.
B. LOSS IS DUE TO FAULT ON THE PART OF A SOLIDARY DEBTOR - all the

solidary debtors shall also be considered at fault or in delay.
Example: If, in the preceding example, the vehicle was lost through the fault of
Cid, Arham and Bal shall also be responsible to Dan for the price of the vehicle as well
as damages although Arham and Bal were not at fault at all.
If one of the solidary debtors is at fault or in delay, all the solidary debtors shall
also be considered at fault or in delay.
Arham and Bal, however, can recover from Cid, the guilty or negligent debtor, the
full amount of such price and damages if Arham and Bal have already contributed to the
price of the vehicle.
However, if Dan recovers the price and damages from Cid, the latter cannot
claim reimbursement from Arham and Bal, because he alone was at fault.
C. LOSS IS WITHOUT FAULT BUT AFTER DELAY - lost due to fortuitous event but
after delay with the innocent party having a right of action against the guilty party who
caused the delay.
Example: If the vehicle was lost through a fortuitous event but after a demand
was made upon Cid, Dan can still recover damages from Arham or Bal or both of them
without prejudice to the right of action of the latter against Cid following the same rule in
No. 2.
The default by Cid makes all of the solidary debtors responsible even for a
fortuitous event.
Article 1222. A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses which are derived from the nature of the obligation and of
those which are personal to him, or pertain to his own share. With respect to
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those which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible.
SOLIDARY DEBTOR’S DEFENSES

1. DERIVED FROM THE NATURE OF THE OBLIGATION - a complete defense
because it nullifies the obligation or renders it ineffective.
Examples: fraud, prescription, remission, illegality or absence of consideration, res
judicata,non-performance of a suspensive condition.
Example: Adonis and Ben are solidarily liable to Cadi in the amount of
P10,000.00. The entire debt of Adonis and Ben was paid by Drex. In an action by Cadi
against Adonis, the latter can raise the defense of payment by virtue of which the
obligation was extinguished.
2. DEFENSES PERSONAL TO, OR WHICH PERTAIN TO SHARE OF, DEBTOR

SUED - examples: incapacity, mistake, violence, minority, etc.
• A solidary debtor, by his own act or inaction, such as by failing to appeal, may
lose the benefit of the provisions of Article 1222.
Example: If the action by Cadi is against Ben, and Ben was insane at the time
the obligation was contracted, Ben can put up the defense of insanity with respect to the
entire obligation. This defense is personal to Ben alone. It is a complete defense.
3. DEFENSES PERSONAL TO OTHER SOLIDARY DEBTORS.

Example: In the two preceding examples, the defense of insanity or non-
fulfillment of the suspensive condition is not available to Adonis as to release him from
his liability for his share in the obligation.
Section 5. — Divisible and Indivisible Obligations
Article 1223. The divisibility or indivisibility of the things that are the object
of obligations in which there is only one debtor and only one creditor does not
alter or modify the provisions of Chapter 2 of this Title.
DIVISIBLE OBLIGATION - is one the object of which, in its delivery or performance, is

capable of partial fulfillment.
Example: Dolly agreed to pay Connie P8,000.00 in two equal monthly
installments. The obligation of Dolly is divisible because it is capable of partial
performance.
INDIVISIBLE OBLIGATION - is one the object of which, in its delivery or performance,

is not capable of partial fulfillment.
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Example: Dolly promised to pay Connie on a certain date the full amount of her
debt, P8,000.00. Since the agreement is for the obligation to be fulfilled at one time and
as a whole, the obligation is indivisible although money is physically divisible.
TEST OF DISTINCTION
GENERAL RULE:
• The intention of the parties or the purpose of the obligation is the determining
factor if obligation is divisible or indivisible.
EXCEPTIONS:
• OBJECT IS NOT PHYSICALLY DIVISIBLE OR THE SERVICE IS NOT
SUSCEPTIBLE OF PARTIAL PERFORMANCE - the obligation is always
indivisible, even if the parties intended otherwise. This rule is absolute.
Example: Santos will deliver one-half of a truck on April 10 and the other half on
April 20. The obligation is still indivisible and Santos must deliver the whole truck on
April 10 or April 20.
PRESUMPTION:
• If there is only one creditor and only one debtor - the obligation is presumed
indivisible.
KINDS OF DIVISION
1. QUALITATIVE DIVISION – is one based on quality, not on number or quantity of the
things that are the object of the obligation.
Example: Andrea and Bridget are heirs of Castro. They agreed to divide the inheritance
as follows: to Andrea – a farm lot and to Bridget – an apartment.
2. QUANTITATIVE DIVISION -is based on quantity rather than on quality.

Example: In the preceding example, if the inheritance consists only of a farm lot, its
partition by metes and bounds into two equal parts is a quantitative division.
3. IDEAL OR INTELLECTUAL DIVISION – is one which exists only in the minds of the
parties.
Example: Suppose the farm lot and the apartment - in the first example, were
inherited by both Andrea and Bridget.
As co-owners, their one-half shares in the farm lot and apartment are not
separable in a material way but only mentally. Similarly, before the land is actually
divided between Andrea and Bridget, they are merely co-owners, and neither one of
them can say that he is the absolute owner of a specific portion thereof.
-Adapted. (De Leon, 2010
KINDS OF INDIVISIBILITY
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1. LEGAL INDIVISIBILITY - where a specific provision of law declares as indivisible,
obligations which, by their nature, are divisible;
2. CONVENTIONAL INDIVISIBILITY - where the will of the parties makes as indivisible,

obligations which, by their nature, are divisible; and
3. NATURAL INDIVISIBILITY - where the nature of the object or prestation does not
admit of division, e.g., to give a particular car, to sing a song, etc.
Article 1224. A joint indivisible obligation gives rise to indemnity for

damages from the time anyone of the debtors does not comply with his
undertaking. The debtors who may have been ready to fulfill their promises shall
not contribute to the indemnity beyond the corresponding portion of the price of
the thing or of the value of the service in which the obligation consists.
Article 1225. For the purposes of the preceding articles, obligations to give
definite things and those which are not suscepible of partial performance shall be
deemed to be indivisible.
When the obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metrical units, or analogous things
which by their nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an

obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by

the character of the prestation in each particular case.
OBLIGATIONS DEEMED INDIVISIBLE

1. Obligation to give definite things;
2. Obligations which are not susceptible of partial performance;
3. Even though the object or service may be physically divisible, it is indivisible if:
a. the law so provides;
b. when the parties intended it to be indivisible
OBLIGATIONS DEEMED DIVISIBLE

When the object of the obligation is:
a. the execution of a certain number of days of work;
b. the accomplishment of work by metrical units;
c. by their nature susceptible of partial compliance;
EXAMPLES OF OBLIGATIONS DEEMED INDIVISIBLE

1. Obligations to give definite things - to give a particular cellphone; to deliver a
specific bag.
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2. Obligations which are not susceptible of partial performance - to sing a song; to
dance the “Oh na na.”
3. Obligations provided by law to be indivisible even if thing or service is

physically divisible - under the law, taxes should be paid within a definite period.
Although money is physically divisible, the amount of tax payable must be delivered in
toto, not partially.
4. Obligations intended by the parties to be indivisible even if thing or service is

physically divisible - The obligation of Donita to give P10,000.00 to Clarita on a certain
date. Money is physically divisible but the obvious purpose is for Donita to deliver
P10,000.00 at one time and as a whole.
OBLIGATIONS DEEMED DIVISIBLE

1. Obligations which have for their object the execution of a certain number of
days of work - The obligation of Ador to build the house of Ynez, the building to be
finished in 1 month. Here, the obligation need not be fulfilled at one time.
2. Obligations which have for their object the accomplishment of work by metrical
units - The obligation of Ador to make a table, 3 feet wide and 5 feet long; the obligation
of Ador and Cardo to deliver 20 cubic meters of sand.
But the obligation of Cardo alone to deliver 20 cubic meters of sand is indivisible.
3. Obligations which by their nature are susceptible of partial performance - The

obligation of Mr. Castillo to teach “Income Taxation” for one year in a university.
-Adapted. (De Leon, 2010
DIVISIBILITY OR INDIVISIBILITY IN OBLIGATIONS NOT TO DO

a. INDIVISIBLE OBLIGATION - the obligation should be fulfilled continuously during a
certain period.
Example: Alec obliged himself to Badil not to sell softdrinks in his store for 1
month.
b. DIVISIBLE OBLIGATION – fulfillment is not continuous.

Example: If the obligation of Alec is not to sell cigarettes in his stores only during
Christmas and other holidays, the obligation is divisible because the prohibition is not
continuous..
Section 6. — Obligations with a Penal Clause
Article 1226. In obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless, damages
shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
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The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code.
OBLIGATION WITH A PENAL CLAUSE – is an obligation which includes an additional

stipulation to pay a previously agreed indemnity, meant to compel performance, if the
primary prestation is not complied with.
PENAL CLAUSE - is an additional commitment by the obligor, attached to an

obligation, to shoulder greater liability in case of failure to comply with the terms of the
contract.
PURPOSES OF PENAL CLAUSE

1. To prevent breach of the obligation and insure their performance; and
2. To substitute a penalty for the indemnity for damages and the payment of interests in
case of non-compliance; or
3. To punish the debtor for the violation of his obligation.
PENAL CLAUSE CONDITION

An obligation, although an accessory Not an obligation
May become demandable Is never demandable
GENERAL RULE: In an obligation with a penal clause, penalty substitutes for:

a. damages
b. payment of interest in case of breach of obligation, unless the intention of the parties
is otherwise.
• Penalty is demandable only if the obligation on which it depends breached and it

is not contrary to law, morals, good customs, public order, or public policy (Art.
1306).
• No penalty if the noncompliance of the obligation is due to a fortuitous event.
EXCEPTIONS: – additional damages may be recovered from the following acts:

a. If the debtor refuses to pay the penalty;
b. If the debtor is guilty of fraud in the fulfillment of the obligation;
c. If there is express stipulation that the other damages or interests are demandable in
addition to the penalty in the penal clause.
KINDS OF PENAL CLAUSE

A. As to its origin:
1. LEGAL PENAL CLAUSE - when it is stated in law; and
2. CONVENTIONAL PENAL CLAUSE - when it is agreed upon by the parties.
B. As to its purpose:
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1. COMPENSATORY PENAL CLAUSE - when the penalty takes the place of damages;
and
2. PUNITIVE PENAL CLAUSE - when the purpose of the penalty is simply to punish for
breach of the obligation.
C. As to its dependability or effect:

1. SUBSIDIARY OR ALTERNATIVE PENAL CLAUSE- when only the penalty can be
enforced; and
2. JOINT OR CUMULATIVE PENAL CLAUSE - when both the principal obligation and
the penal clause can be enforced. (8 Manresa 215).
Example: Sol promised to deliver a specific horse to Bin. The contract carried a
penal clause that in case of non-compliance, Sol would have to pay a penalty of
P30,000.00. Because Sol did not deliver the horse, Bin suffered damage in the amount
of P25,000.00.
a. Sol has to pay the penalty of P30,000.00.

b. Bin cannot recover more than P30,000.00, even if he suffered damages worth
P35,000.00.
c. The penalty substitutes the indemnity for the damage of P25,000.00, unless
there is a stipulation to the contrary in which case, B may also recover the damages
proved by him.
d. If Sol refuses to pay the penalty, Bin may recover legal interest thereon, the
interest representing new damages brought about by the non- payment of the penalty.
e. If Sol committed fraud in the performance of his obligation, he is also liable for
the damages caused thereby.
Article. 1227. The debtor cannot exempt himself from the performance of
the obligation by paying the penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor demand the fulfillment of the
obligation and the satisfaction of the penalty at the same time, unless this right
has been clearly granted him. However, if after the creditor has decided to require
the fulfillment of the obligation, the performance thereof should become
impossible without his fault, the penalty may be enforced.
• The debtor cannot opt to just pay the penalty instead of complying with his
obligation, unless this option is given to him.
• Generally, the creditor cannot demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has been clearly
given to him.
49
Article 1228. Proof of actual damages suffered by the creditor is not necessary
in order that the penalty may be demanded.
• The creditor does not have to show proof that he actually suffered damages so
that he can collect the penalty.
Article 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
WHEN COURT MAY REDUCE THE PENALTY

1. When there is partial or irregular performance
2. When the penalty agreed upon is iniquitous or unconscionable.
Article 1230. The nullity of the penal clause does not carry with it that of the
principal obligation.
The nullity of the principal obligation carries with it that of the penal clause.
• Based on the general principle that the accessory follows the principal and not
vice versa;
• The principal obligation remains valid if only the penal clause is void;
• The penal clause is also void If the principal obligation is void;
• If debtor is with fault for acting in bad falth resulting to nullity of the principal
obligation and thereby causing damage to the creditor, on equitable grounds, the
penalty may be enforced.
Self-Help: You can also refer to the sources below to help you further
understand the lesson:
Albano, EV, Albano, EV Jr., Albano-Pua, MK, Albano, EV III 2016, Civil Law Reviewer,
Central Books Supply, Inc., Quezon City
Agpalo. R 2008, Obligations and contracts, Rex Bookstore, Inc., Manila, Philippines.
De Leon, H 2010,The law on obligations and contracts, Rex Bookstore, Inc., Manila,
Philippines.
Jurado, D 2009, Civil law reviewer, Rex Bookstore, Inc., Manila, Philippines.
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Paras, E 2008, Civil code of the Philippines annotated, Volume IV, Arts. 1106-1457
(Prescription, Obligations and Contract), Rex Bookstore, Inc., Manila,
Philippines.
Soriano, F 2014 Notes in business law. GIC Enterprises & C0., Inc., Maniia
Vitug, J 2006, Civil Law, Volume III (Articles 1156-1641), Rex Bookstore, Inc., Manila,
Philippines
Let’s Check
Activity 1. Now that you know the most essential terms in the study of the different kinds of
obligations, let us try to check your understanding of these terms. Write the correct term in the
space provided.
______________1. The impossibility is brought about by provision of law, although

physically it may be possible to perform.
______________2. It is an accessory undertaking attached to an obligation to assume

greater liability on the part of the obligor in case of breach of the obligation.
______________ 3. An obligation described using the phrase “severally, jointly and/or

severally.”
_______________4. It is an obligation wherein only one prestation has been agreed

upon but the obligor may render another in substitution.
_______________ 5. It is an obligation which is attached to a principal obligation and,

therefore, cannot stand alone.
________________6. It is a future and uncertain event, upon the happening of which,

the effectivity or extinguishment of an obligation (or rights) subject to it depends.
________________7. It is when the value of a thing is reduced or impaired with or

without the fault of the debtor.
________________8. The obligation is joint for the debtors are only liable for their own
share in the whole obligation. . It is indivisible because the object or subject matter
________________9. Solidarity on both parts of the debtors and creditors; each one of
the debtors has to render, and each one of the creditors may exact, complete fulfillment
of the obligation.
_______________10. It is solidarity on the part of the debtors, any of debtors can be

obliged to fulfill the whole obligation.
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Activity 2. Write the letter of the correct answer in the space provided for each
number.
_____1. The following are divisible obliations, except:
a. which has for its object the execution of a certain number of days of work.
b. to give definite things.
c. which has for its object the accomplishment of work by metrical units.
d. which by its nature is susceptible of partial performance.
_____2. Generally, in an obligation with a penal clause, in case of breach the creditor
as a rule may recover from the debtor the following:
a. only the penalty
b. the penalty as agreed upon, plus damages and interest.
c. the penalty and damages.
d. the penalty and interest.
_____3. J,K,L and M are jointly liable to pay P,Q, R, S, and T, solidary creditors,
P20,000.
a. R may collect from K P20,000.
b. R may collect from K P4,000.
c. R may collect from K P5,000.
d. R may collect from K P1,000.
_____4. . J, K, L and M are solidarily liable to pay P,Q, R, S, and T, joint creditors,
P20,000.
a. R may collect from K P20,000.
b. R may collect from K P4,000.
c. R may collect from K P5,000.
d. R may collect from K P1,000.
______5. An obligation ceases to be alternative and becomes a simple obligation in the

following cases, except when:
a. the debtor has communicated his choice to the creditor.
b. among the several prestations that are due, only one is practicable.
c. the right of choice hs been expressly granted to the creditor and his choice has
been communicated to the debtor.
d. three prestations are due but one of them is unlawful or impossible.
_____6. Daniel obliged himself on January 1, 2020 to give Carla P10,000 if Carla will
become pregnant on or before December 31, 2020. The condition of the
obligation is a:
a. negative condition
b. positive condition
c. joint condition
d. impossible condition
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_____7. Refer to question no. 6. Which of the following statements is incorrect?
a. The obligation of Daniel is demandable if Carla becomes pregnant on or
before December 31, 2020.
b. The obligation of Daniel is extinguished if it is already January 1, 2021 and
Carla is not yet pregnant.
c. The obligation of Daniel is extinguished on December 2, 2020 if Carla dies
without getting pregnant.
d. The obligation is demandable if Carla becomes pregnant in July 1, 2016.
_____8. Alternative obligation and facultative obligation are similar in which of the
following respects?
a. The right of choice may be given either to the debtor or creditor.
b. Several prestations are due.
c. Only one prestation is due but the debtor may render another in substitution.
d. The obligation becomes a simple obligation once the choice of the prestation
is made and communicated.
_____9. J, K, L, and M owe P, Q, and R the sum of P24,000. Based on the foregoing
fact, which of the following statements is incorrect?
a. The obligation is joint.
b. There are 7 distinct debts in the obligation.
c. Each debtor is liable only for a total of P6,000.
d. Each debtor is entitled to collect a maximum of P8,000.
_____10. One of the following obligations is void. Which is it?

a. Dora to allow Cora to use Dora’s car until December 31, 2020.
b. Dora to allow Cora to use Dora’s car until Cora finishes her course in English.
c. Dora to give Cora her car. It was not mentioned when Dora shall give the car.
d. Dora to give Cora a car if Cora finishes her course in English.
Let’s Analyze
Case 1: Andrei borrowed money from Brayne, and pledged a ring with diamonds as
security. They agreed that Andrei was to pay the money borrowed with interest at the
end of one year. Is Andrei allowed to pay his debt and recover the ring pledged before
the expiration of the one-year period?
Case 2: The defendants, as partners in the management of a coffee shop, owed the
plaintiff the amount of P100,000. The trial court ordered each of the defendants liable
for the whole amount (in solidum). Partner A appealed this point. Is Partner A’s appeal
valid? If yes, on what legal basis?
Case 3: Annie, Benny, and Ceddy are jointly liable to give a particular vehicle worth
P1.2 million in favor of Danny, Elly, Fely, and Gelly. Aannie is insolvent so the debtors
cannot purchase the car to give to the creditors. Danny and Elly have renounced their
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rights. The debtors are not in default. How much can each of the creditors get from each
of the debtors?
Case 4: Ally, Billy, Cely, Dely, and Elly borrowed money from Fely. The contract
stipulated a solidary one, but the debtors were bound under different terms and
conditions. Fely brought an action to recover from Ally, whose obligation was already
due. Ally claims that she cannot be made to pay because the obligations incurred by his
solidary co-debtors were not yet due. In a solidary obligation wherein the debtors are
bound by different terms and conditions, may the creditor sue one of them? Explain
your answer thoroughly.
Case 5: Santos and Co. sold an equipment to the defendant Burgos for P100,000
payable in quarterly installments of P10,000 each. The equipment was made security
for the debt. Shortly after delivery to Burgos, the equipment and the money for its
quarterly payment were both lost in a fire which completely demolished the company’s
building. Is the buyer still liable? Why? If yes, when should he pay? Give the right/s of
the creditor.
Case 6: Alex promises to give Ben a particular computer or a specific necklace or a

definite camera. May Alex compel Ben to accept half the computer and half the
necklace, thus establishing co-ownership between Alex and Ben?
Case 7: The parties concurred that if in a contract of loan the borrower cannot pay the
indebtedness on the date agreed upon, the debtor should mortgage a parcel of land to
secure the debt. Define and describe this kind of obligation.
In A Nutshell
Instruction: Explain your answers thoroughly using your own word, based on you
understanding.
1. What are the differences between a pure and conditional obligation?
2. What are the differences between a condition and a period?
3. Explain the differences between a suspensive and resolutory condition?
4. Explain the rules which must be observed in a suspensive obligation to give in case
of the improvement, loss or deterioration of the thing during the pendency of the
condition.
5. Differentiate joint obligation versus solidary obligation.
6. Contrast divisible obligation from an indivisible obligation.
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7. Compare real obligation from personal obligation.
8. Explain the differences between an alternative and facultative obligation.
9. Contrast a civil obligation from a natural obligation.
10. Explain the instances when damages may still be collected despite the obligation
being one with a penal clause.
Q & A List
Do you have any questions for clarification? You may write it them down below.
Questions/Issues Answers
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
Keywords Index
accessory obligation express condition novation

casual condition facultative obligation obligation with a period
obligation with a penal
civil loss ideal or intellectual division
clause
collective obligation implied condition passive obligation
compensation impossible condition penal clause
compensatory penal clause improvement of thing period
compound obligation indefinite period physical loss
condition individual obligation possible condition
conditional obligation indivisible condition potestative condition
confusion or merger indivisible obligation . principal obligation
conjunctive condition joint indivisible obligation punitive penal clause
conjunctive obligation joint obligation pure obligation
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contractual period joint penal clause real solidarity
conventional indivisibility judicial period reciprocal obligations
conventional penal clause legal indivisibility remission
conventional period legal loss rescission
conventional solidarity legal penal clause resolutory condition
definite period legal period resolutory period
deterioration of thing legal solidarity simple obligation
disjunctive condition mixed condition solidary obligation
distributive obligation mixed solidarity subsidiary penal clause
divisible condition natural indivisibility suspensive period
negative impossible
divisible obligation uniform solidarity
condition
doctrine of mutual agency non-reciprocal obligations non-uniform solidarity
Big Picture in Focus:

ULOb: Define and differentiate the different modes of extinguishing obligations.
Metalanguage
In this section, the most essential terms relevant to the study of the different modes of
extinguising obligations and to demonstrate ULOb will be operationally defined to
establish a common frame of refence as to how the texts work in your chosen field or
career. You will encounter these terms as we go through with our lessons. Please refer
to these definitions in case you will encounter difficulty in understanding basic legal and
obligations concepts.
application of payments - is the specification of the debt to which the payment of the
debtor will be applied to, in case he has more than one debt of the same kind in favor of
one and the same creditor.
assignment of credit – is defined as the process of transferring the right of the assignor
to the assignee who would then have the right to proceed against the debtor.
breach of an obligation - occurs when there is a failure or refusal, by a party, without

legal reason or excuse, to perform, in whole or in part, the obligation or undertaking
which is incumbent upon him.
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burden of proof - is the duty of a party to present evidence of the facts in issue
necessary to prove the truth of his claim or defense by the amount of evidence required
by law.
capacity to alienate - means that the person is not incapacitated to enter into contracts
and for that matter, to make a disposition of the thing due.
compensation - is the extinguishment to the concurrent amount of the debts of two

persons who, in their own right, are reciprocally principal debtors and creditors of each
other.
confusion or merger - is the meeting in one person of the qualities of creditor and
commodatum - is a gratuitous contract whereby one of the parties delivers to another

something not consumable so that the latter may use the same for a certain time and
return it.
complete condonation- when it entire obligation is condoned.
condonation or remission - is the gratuitous forsaking by the creditor of his right against
the debtor causing the cancellation, wholly or partly, of the latter’s obligation.
consignation - is the deposit of the prestation with the proper court when the creditor
does not desire, or refuses to accept payment, or cannot receive it, after, in some
instances, a valid tender of tender of payment.
controversy - exists when a third person claims he is the creditor of one of the parties.
conventional compensation – can take place although not all the requisites for legal
compensation are present. What is important is that the contract of the parties, which
declares the compensation, is valid.
conventional novation - that which takes place by agreement of the parties.
conventional subrogation - when it takes place by express agreement of the original

parties (the debtor and the original creditor) and the third person (the new creditor);
must be clearly established in order that it may take place.
dation in payment (adjudication or dacion en pago) - is the conveyance of ownership of

a thing by the debtor to creditor as an accepted equivalent of performance of a
monetary obligation.
debt - may refer to an obligation to deliver money, to deliver a thing (other than money),
to do an act, or not to do an act.
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deflation - is the reduction in volume and circulation of the available money or credit,
resulting in a decline of the general price level; it is the opposite of inflation.
.
delegacion- that which takes place when the creditor accepts a third person to take the
place of the debtor at the instance of the latter.
depositum – happens when a someone receives another person’s thing with the
obligation of keeping it safe and returning it to the owner afterwards
domicile - is the place of a person’s habitual residence. legal residence; requires bodily
presence in that place and also an intention to make it one’s domicile.
estoppel - an admission or representation is rendered conclusive upon the person

making it and cannot be denied or disproved as against the person relying thereon.
express condonation- when it is expressed either verbally or in writing.
express novation- when it is so declared in unequivocal terms.
expromision - that which takes place when a third person of his own initiative and
without the knowledge or against the will of the original debtor assumes the latter’s
obligation with the consent of the creditor.
extinctive novation- when the old obligation is completely extinguished.
free disposal of the thing due - means that the thing to be delivered must not be subject
to any claim or lien or encumbrance of a third person.
garnishment - the proceeding for the purpose of subjecting a debtor’s credit to the
payment of his debt to another.
genus nunquam perit - which means that a generic thing never perishes.
good faith – is the honest belief that he is making a valid payment and that the payee is
the owner of the credit.
implied condonation - when it can only be inferred from conduct.
implied novation - when the old and the new obligations are essentially incompatible
with each other.
impossibility in fact – the obligation cannot be performed not because of the nature of
the act but only because it is improbable or out of the power of the obligor to perform.
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inflation - is a sharp sudden increase of money or credit or both without a corresponding
increase in business transactions (Webster’s Dictionary.)
injunction - It is a judicial process by virtue of which a person is generally ordered to

refrain from doing something.
inofficious - excessive.
interest – compensation for the use of borrowed money.
inter vivos condonation - when remission will take effect while the donor is still alive.
judicial compensation- when it takes place by order from a court in a litigation.
judicial cost - are the statutory amounts allowed to a party to an action for his expenses
incurred in the action.
legal compensation - when it takes place by operation of law when all the requisites are
present even without the knowledge of the parties.
legal impossibility – impossibility is brought about by provision of law, although

legal novation- that which takes place by operation of law.
legal subrogation - when it takes place without agreement but by operation of law; not
presumed except in the cases expressly provided by law.
Legal tender - is that currency which a debtor can legally compel a creditor to accept in
payment of a debt in money when tendered by the debtor in the right amount. (see
Black’s Law Dictionary.)
legitime – is the portion of the testator’s property which he cannot dispose of because
the law has reserved it for certain heirs.
liquidated - definitely determined or determinable.
mixed novation - when the object or principal condition of the obligation and the debtor
or the creditor or both the parties, are changed. It is a combination of real and personal
novations.
modificatory novation - the old obligation is merely modified.
mortis causa condonation - when condonation will take effect upon the death of the
donor. It must comply with the formalities of a will.
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natural impossibility – the impossibility of performance is due to the inherent nature of
the thing to be done and not because it is beyond the ability of the debtor to comply.
novation – it is the substitution or change of an obligation by another, which

extinguishes or modifies the first, either by changing its object or principal conditions, by
or substituting another in place of the debtor, or by subrogating a third person in the
rights of the creditor.
partial compensation - when the two obligations are of different amounts and a balance
remains. The extinctive effect of compensation will be partial only as regards the larger
debt.
partial condonation - when only a portion the entire obligation is remitted.
partial loss - when only a portion of the thing is lost or destroyed or when it suffers
depreciation or deterioration; it is the equivalent of difficulty of performance in
obligations to do.
payment – consists in the delivery of the thing or the rendition (rendering) of the service
which is the object of the obligation.
payment by cession - is the transfer by the debtor of all his properties to the creditor so
that they may sell them and apply their proceeds to the payment of their credits.
personal or subjective novation - when the person of the debtor is substituted and/or
when a third person is subrogated in the rights of the creditor.
physical impossibility - If the impossibility is due to the fault or negligence of the obligor,
he shall be liable for damages.
prescription - one acquires ownership and other rights through the lapse of time in the
manner and under the conditions laid down by law. In the same way, rights and actions
are lost by prescription.
real or objective novation- when the object (or cause) or principal conditions of the
obligation are changed.
residence - is only an element of domicile; simply requires bodily presence as an

inhabitant in a given place.
reimbursement - the third person who paid only has the bare right to be refunded to the
amount provided in the second paragraph of Article 1236 but do not have the right to
the guarantees and securities of the original obligation. In subrogation, however, there
is no real extinction of the obligation, but only a change of creditor.
resolutory condition – if it is complied with, the old obligation is extinguished.
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retention - exists when the credit of one of the parties is subject to the satisfaction of the
claim of a third person.
subrogation – the person who pays for the debtor is put into the shoes of the creditor.
The payer acquires not only the right to be reimbursed for what he has paid but also all
the other rights which the creditor could have exercised pertaining to the credit either
against the debtor or against third persons, be they guarantors or possessors of
mortgages.
substitution - when the person of the debtor is substituted.
support - comprises everything that is indispensable for sustenance, dwelling, clothing,

medical attendance, education and transportation, in keeping with the financial capacity
of the family.
suspensive condition– if it is not complied with, no obligation arises.
tender of payment – is the offering of the debtor of the prestation to the creditor in
total compensation- when both obligations are of the same amount and are entirely
extinguished.
venue - is the place where a court suit or action must be filed or instituted. (Secs. 1-4,
Rule 4, Rules of Court.)
Essential Knowledge
Chapter 4 – Extinguishment of Obligations
General Provisions
Article 1231. Obligations are extinguished:

(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment,

rescission, fulfillment of a resolutory condition, and prescription, are governed
elsewhere in this Code.
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OTHER CAUSES OF EXTINGUISHMENT OF OBLIGATIONS
1. Death of a party in case the obligation is a personal one;
2. Mutual desistance or withdrawal;
3. Arrival of resolutory period;
4. Compromise;
5. Impossibility of fulfillment; and
6. Happening of a fortuitous event.
Section 1. — Payment or Performance
Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
PAYMENT - delivery of money; giving of a thing (other than money), the doing of an act,
or not doing of an act.
SPECIAL FORMS OF PAYMENT

1. Tender and consignation of payment;
2. Dation in payment;
3. Payment by cession of properties.
ELEMENTS OF PAYMENT
1. persons, who may pay and to whom payment may be made;
2. thing or object in which payment must consist;
3. the cause thereof;
4. the mode or form thereof;
5. the place and the time in which it must be made;
6. the imputation of expenses occasioned by it; and
7. the special parts which may modify the same and the effects they generally produce
DEBTOR – generally is the one with the burden of proof of payment.
Article 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered or
rendered, as the case may be.
• Generally, to effect a valid payment, the thing or prestation promised must

exactly be the one delivered and it must be delivered in whole.
Article 1234. If the obligation has been substantially performed in

good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
REQUISITES:
1. Substantial performance
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2. Good faith - Good faith is presumed in the absence of proof to the contrary.
Example: Sok obliged himself to sell 1,000 bottles of softdrinks to Bod for a
certain price. However, despite his utmost effort on his part, Sok was able to deliver only
950 bottles for reasons beyond his control. Sok wants to comply with his obligation to
deliver the entire 1,000 bottles but he was not able to due to causes beyond his will.
Sok can recover as though there had been complete delivery less the price of the
50 bottles. In other words, Bod cannot require Sok to deliver first the remaining 50
bottles as a condition to his liability for the price. He must pay for the 950 bottles and
enforce his right to damages for failure of Sok to deliver the difference. It is incumbent
upon Sok, however, to explain satisfactorily his failure to make complete delivery.
Article 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or objection,
the obligation is deemed fully complied with.
• This article is an exception to Article 1233; founded on the principle of estoppel.

• The creditor may properly reject an incomplete or irregular payment. However, in
case he accepts the incomplete payment, it is as if he is waiving his right, thus
the whole obligation is extinguished.
REQUISITES:
1. The obligee knows that the performance is incomplete or irregular; and
2. He accepts the performance without expressing any protest or objection.
ACCEPT - It is not enough that the creditor received the partial payment, he must
agree or give assent to the incomplete payment.
Article. 1236. The creditor is not bound to accept payment or performance

by a third person who has no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor.
PERSONS FROM WHOM CREDITOR MUST ACCEPT PAYMENT/PERFORMANCE

1. The debtor;
2. Any person who has an interest in the obligation (like a guarantor); or
3. A third person who has no interest in the obligation when there is stipulation that he
can make payment.
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• The creditor should not be forced to accept payment from a third person whom
he may dislike or distrust.
EFFECTS OF PAYMENT BY THIRD PERSONS

1. If made without the knowledge or against the will of debtor -
a. the payer can recover from the debtor only in so far as the payment has been
beneficial to the latter (meaning, only up to the extent or amount of the debt at the time
of payment);
b. no subrogation of rights of the creditor.
2. If made with the knowledge of the debtor -

a. payer with the rights of reimbursement –meaning, to recover what he has paid
and not limited only to the amount of the debt
b. payer has the right to subrogation – meaning, to acquire all the rights of the
creditor.
Example: Daz owes Caz the sum of P10,000.00. If Saz, a stranger to the
obligation, offers to pay Caz, the latter may or may not accept the offer of payment.
Suppose Caz accepts, the right of Saz to recover from Daz depends upon
whether the payment is with or without the knowledge or consent of Daz.
1. Without the knowledge (or against the will) of Daz - If the actual indebtedness is
P10,000.00 and Saz paid P10,000.00, he can ask reimbursement for P10,000.00 but if
P4000.00 had already been paid by Daz, then Saz is entitled to be reimbursed only for
the amount of P6000.00 because it is only to that amount that Daz has been benefited.
S can recover P4000.00 from Caz who should not have accepted it.
If Caz acted in bad faith, he is liable also for interest in lieu of damages.
2. With the knowledge of Daz - In either case, if the payment of P10,000.00 was made
with the knowledge or consent of Daz, Saz can recover from Daz P10,000.00 with all
the rights of subrogation to the accessory obligations such as mortgage, guaranty, or
penalty.
Article 1237. Whoever pays on behalf of the debtor without the knowledge
or against the will of the latter, cannot compel the creditor to subrogate him in his
rights, such as those arising from a mortgage, guaranty, or penalty.
SUBROGATION – the person who pays for the debtor is put into the shoes of the
creditor. The payer acquires not only the right to be reimbursed for what he has paid but
also all the other rights which the creditor could have exercised pertaining to the credit
either against the debtor or against third persons, be they guarantors or possessors of
mortgages.
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REIMBURSEMENT - the third person who paid only has the bare right to be refunded to
the amount provided in the second paragraph of Article 1236 but do not have the right
to the guarantees and securities of the original obligation. In subrogation, however,
there is no real extinction of the obligation, but only a change of creditor.
Example: Dory borrowed from Cory P10,000.00 with Ganny as the guarantor.
Without the knowledge or consent of Dory, Xali paid Cory P10,000.00.
In this case, Xali can claim reimbursement from Dory for the whole amount of
P10,000.00 since Dory was benefited up to that amount. If Dory fails to pay Xali, the
latter cannot go against Ganny, the guarantor (even if Cory is willing) because, having
paid without the consent of Dory, Xali is not entitled to subrogation. But if Xali paid with
the express or tacit approval of Dory, Xali would be entitled to full reimbursement and
subrogation.
If the loan is secured by a mortgage of a farm land owned by Dory, payment by

Xali without the knowledge or against the will of Dory, will not give Xali the right to
foreclose the mortgage because he has no right to subrogation. Xali can recover only
insofar as the payment has been beneficial to Dory.
Article 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the debtor’s
consent. But the payment is in any case valid as to the creditor who has accepted
it.
• It is deemed a donation, valid on the part of the debtor only if with his consent.
• On the other hand, payment is valid to the accepting creditor and payor, even
without the consent of the debtor.
Example: Dale owes Cale P10,000.00. Without the intention of being reimbursed,
Xane paid Dale’s obligation. Dale had previously accepted Xane’s generosity.
Dale is not liable to Xane and his obligation to Cale is extinguished. But if Dale
did not consent to the donation, Xane may recover from Dale since there has been no
donation, although originally Xane did not intend to be reimbursed. Nevertheless, the
obligation of Dale to Cale is extinguished because the payment is valid as to Cale who
has accepted it.
Can Dale legally refuse to pay Xane and instead insist on paying Cale? No.
Article 1239. In obligations to give, payment made by one who does not
have the free disposal of the thing due and capacity to alienate it shall not be
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valid, without prejudice to the provisions of Article 1427 under the Title on
“Natural Obligations.’’
FREE DISPOSAL OF THE THING DUE - means that the thing to be delivered must
not be subject to any claim or lien or encumbrance of a third person.
CAPACITY TO ALIENATE - means that the person is not incapacitated to enter into
contracts and for that matter, to make a disposition of the thing due.
Article 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it.
PERSON TO WHOM PAYMENT SHALL BE MADE

1. the creditor or oblige - creditor at the time of payment; if with subrogation – the new
creditor.
2. his successor in interest - like an heir or assignee; or
3. any person authorized to receive it.
“any person authorized to receive it” - not only a person authorized by the creditor,
but also a person authorized by law to receive the payment.
Example: guardian; executor or administrator of the estate of a deceased;

assignee or liquidator of a partnership or corporation.
Article 1241. Payment to a person who is incapacitated to administer his

property shall be valid if he has kept the thing delivered, or insofar as the
payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has

redounded to the benefit of the creditor. Such benefit to the creditor need not be
proved in the following cases:
(1) If after the payment, the third person acquires the creditor’s rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor’s conduct, the debtor has been led to believe that the
third person had authority to receive the payment.
PAYMENT TO INCAPACITATED PERSON - invalid unless the incapacitated person

kept the thing paid or delivered or was benefited by it (no need that it was invested in
some profitable venture)
• Without this benefit, which generally must be proved by the debtor, he may be
made to pay again.
Example: Aldo is liable to Bando for P1,000. Although Bando was already insane
when Also gave him the payment, the former did not use the money but instead kept it.
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Aldo’s obligation is extinguished because although Bando was mentally incapacitated to
administer his property, still he kept the amount paid by Aldo. As such, Aldo’s payment
is valid.
However, if Bando lost P500 of the P1,000 paid by Aldo, while able to keep the
other P500, the latter’s payment will only be valid for P500, the amount kept, as this is
the only payment which benefited Bando.
-Adapted. (Paras, 2008)
PAYMENT TO THIRD/WRONG PERSON – invalid except if the payment has

redounded to the benefit of the creditor, irregardless that it was due to mistake only and
even if the debtor acted in utmost good faith.
WHEN BENEFIT TO CREDITOR NEED NOT BE PROVED BY DEBTOR

In case of:
1. subrogation of the payer in the creditor’s rights;
2. ratification by the creditor; or
3. estoppel on the part of the creditor.
• In such cases, the benefit to the creditor is to be presumed.

• A debtor who, prior to his knowledge of the assignment of the credit to a third
person, pays the original creditor, shall be released from the obligation.
Article 1242. Payment made in good faith to any person in possession of

the credit shall release the debtor.
REQUISITES FOR VALID PAYMENT UNDER ART. 1424:

a. Payor must be in good faith. (Generally, the presumption is that the payor is in
good faith.)
b. Payee must be in possession of the credit itself and not merely of the
document evidencing the credit (unless transferable by delivery).
GOOD FAITH – is the honest belief that he is making a valid payment and that the
payee is the owner of the credit.
Example: Douglas owes Caine P10,000 which is supported by a promissory note

signed by Douglas in favor of Caine. Caine lost the promissory note which was later
found by Suan who asked Douglas for payment.
In case Doulgas pays Suan, the payment is not valid for Suan possesses merely
the document evidencing the credit and not the credit itself.
However, if the promissory note is payable to bearer or holder, the obligation will
be extinguished if Douglas pays Suan in good faith.
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Article 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
• The judicial order may have been cause by an order of attachment,

injunction or garnishment.
• Payment here is void.
GARNISHMENT - the proceeding for the purpose of subjecting a debtor’s credit to the
payment of his debt to another.
Example: Anya owes Banya P100,000. Banya, in turn, owes Canya

P50,000. Canya files an action against Banya, who claims insolvency although she
admits the credit which she has over Anya. Before Anya pays Banya, Anya is
summoned into the proceedings, and asked to retain the debt in the meantime. Thus,
the debt is “garnished.” The reason is Anya should not pay Banya, and instead she
should pay Canya, should Canya really be adjudged the creditor of Banya. Any
payment made by Anya to Banya in the meantime is considered invalid under the law.
Article 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more valuable
than that which is due.
In obligations to do or not to do, an act or forbearance cannot be

substituted by another act or forbearance against the obligee’s will.
GENERAL RULES UNDER ART. 1244

1. IN REAL OBLIGATION TO DELIVER A SPECIFIC THING - without the concurrence
of the creditor or debtor, a different prestation from that due cannot be offered or
demanded, as the case may be.
Example: Andrew owes Brianna an Audemars Piguet watch. Not having any
Audemars Piguet watch, Andrew urges Brianna to accept the more expensive Graff
Hallucination watch, but Brianna does not want to accept it. Even if the Graff
Hallucination watch be more valuable than the Audemars Piguet, if Brianna does not
want the former, she cannot be compelled by Andrew to accept it.
2. IN PERSONAL (POSITIVE AND NEGATIVE) OBLIGATIONS – substitution of the

act to be performed or the act prohibited cannot be made without the obligee’s
concurrence.
EXCEPTIONS:
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1. There can be substitution if the obligee consents.
2. In facultative obligations, the debtor is given the right to render another prestation in
substitution.
Article 1245. Dation in payment, whereby property is alienated to the

creditor in satisfaction of a debt in money, shall be governed by the law of sales.
• In dation en pago, there must be a transmission of ownership to the creditor.
SPECIAL FORMS OF PAYMENT

1. dation in payment (Art. 1245);
2. application of payments (Art. 1253);
3. payment by cession (Art. 1255); and
4. tender of payment and consignation (art. 1256-1261).
• Application of payments is, in its strict sense, not actually a special form of
payment.
DATION IN PAYMENT (ADJUDICATION OR DACION EN PAGO) - a debt in money is

satisfied, not by payment of money, but by the transmission of ownership of a thing by
the debtor to the creditor; in essence a novation of a contract; governed by the law of
sales thus the essential elements of a contract must be present.
REQUISITES FOR A VALID DATION IN PAYMENT

1. Performance of the prestation in lieu of payment (animo solvendi);
2. Difference between the prestation due and that which is given in substitution (aliud
pro alio); and
3. Agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation different from that due.
Example: Dina owes Catrina P10,000.00. With the consent of Catrina, Dina
instead delivers a cellphone to fulfill the obligation, If the cellphone is only worth
P8,000.00, the debt shall be extinguished only up to the value of the cellphone agreed
or as may be proved, except if they agree to have the cellphone as full payment, in
which case the obligation of Dina is totally extinguished.
Article 1246. When the obligation consists in the delivery of an

indeterminate or generic thing, whose quality and circumstances have not been
stated, the creditor cannot demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality. The purpose of the obligation and other
circumstances shall be taken into consideration.
• Article 1246 is a principle of equity in cases of conflict between parties.
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• It refers to obligation to deliver a generic or indeterminate thing.
• The article’s benefit may be waived by the creditor and debtor- meaning the
creditor may accept a thing of inferior quality and debtor may deliver a thing of
superior quality.
FACTOR TO CONSIDER IN DETERMINING THE QUALITY OR KIND OF THE

GENERIC THING TO BE DELIVERED
1. purpose of the obligation; and
2. other circumstances
Example: Sander promised to deliver to Butch a horse. Butch cannot compel

Sander to deliver a price-winning race horse. Neither can Sander require Butch to
accept an old sickly horse.
1. If Butch owns a stable of race horses and horse-racing is his main diversion in
life, which fact is known to Sander, and the price agreed upon is the reasonable price of
a race horse, then Sander must deliver a race horse.
2. If Butch happens to be a “calesa” driver and Butch agreed to pay Sander for
the horse an amount which is the reasonable price of a horse for “calesa,” then that kind
of horse may be delivered.
3. If Butch is a veterinary doctor and his only purpose in buying a horse is to

examine its organs in connection with his work, this, and other relevant circumstances
may show that the old sickly horse was intended by the parties to be delivered.
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses

required by the payment shall be for the account of the debtor. With regard to
judicial costs, the Rules of Court shall govern.
• Article 1247 does not apply to expenses incurred by the creditor in going to the
debtor’s domicile to collect.
EXTRAJUDICIAL EXPENSES OF PAYMENT - unless otherwise agreed upon by the

parties, they are shouldered by the debtor, for he is the one most benefited by the
extinguishment of the obligation.
JUDICIAL COSTS - shall, as a rule, be paid by the losing party.

• The court may, however, for special reasons, adjudge that either party shall pay
the costs, or that the same be divided, as may be equitable.
• No costs are allowed against the Government, unless otherwise provided by law.
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Article 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the prestations in which the
obligation consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former without
waiting for the liquidation of the latter.
• This applies when there is only one creditor and only one debtor.
• There must be complete performance of the prestation.
• Although the creditor has the option, he cannot be compelled to accept partial
payment or performance.
• Although the debtor has the obligation to render complete payment or
performance, he cannot be forced to make partial payments if he does not want
to.
WHEN PARTIAL PERFORMANCE IS ALLOWED

1. when there is an express stipulation to that effect;
2. when the debt is in part liquidated and in part unliquidated;
3. when the different prestations in which the obligation consists are subject to different
terms or conditions which affect some of them.
4. when the parties know that the obligation reasonably cannot be expected to be
performed completely at one time; and
5. when there is abuse of right or if good faith requires acceptance.
Examples:
1. Diego is indebted to Charlie for P10,000.00 due today. Diego cannot compel Charlie
to receive P5,000.00 in partial payment of the obligation and neither can Charlie require
Diego to pay only P5,000.00 unless there is an agreement to the contrary.
2. If Diego owes Charlie P10,000.00 plus the share of Charlie from the profit of a
business which, however, has not yet been liquidated or determined, Charlie may
demand and Diego may effect, the payment of the P10,000.00 which is already known.
3. If P5,000.00 of the debt of Diego is due today and P5,000.00 tomorrow, the obligation
can be complied with partially. Similarly, partial performance may be effected in case
the payment of the P5,000.00 is subject to the fulfillment of a condition.
4. Santy obliged himself to deliver 10,000 bags of cement to Bernie at the construction
site of a building. Santy makes a first delivery of 2,000 bags, informing Bernie that
continuous deliveries will follow. In this case, Bernie cannot, in good faith, refuse to
accept the partial deliveries as long as they are sufficient for his construction needs.
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Article 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or

other mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original obligation shall be
held in abeyance.
“currency stipulated” - refers to money different from that which is the legal tender in
the Philippines.
• The first paragraph of this article was modified by Republic Act No. 529 which
was also later repealed by R.A. No. 8183.
• Currently, obligations or transactions may be paid in a foreign currency as long

as the parties agree to such an arrangement.
LEGAL TENDER IN THE PHILIPPINES:

a. denominations of P0.25 and above - are legal tender for amounts not exceeding
P50.00;
b. denominations of P0.10 or less – legal tender in amounts not exceeding P20.00,
c. all coins and bills above P1.00 - are valid legal tenders for any amount
d. promissory notes, checks (even certified or manager’s checks), bills of
exchange and other commercial documents - are not legal tender, thus the creditor
cannot be compelled to accept them.
• The creditor has the option to accept the items in d above, without the
acceptance producing the effect of payment.
• In the meantime, the demandability of the original obligation is suspended

until the payment by the commercial document is actually realized.
• The creditor must cash the instrument, and it is only when it is dishonored,
that he can bring an action for non-payment of the debt.
ART. 1250. In case an extraordinary inflation or deflation of the currency

stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.
REQUISITES FOR APPLICABILITY OF ARTICLE 1250

1. There is an official declaration of extraordinary inflation or deflation from the Bangko
Sentral ng Pilipinas (BSP);
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2. The obligation is contractual in nature; and
3. The parties expressly agreed to consider the effects of the extraordinary inflation or
deflation.
• This article does not apply where the obligation to pay arises from other sources
independent of contract, such as law, quasi-contract, tort, or crime.
• Subject to the agreement of the parties to the contrary, the basis of payment if
there is an extraordinary increase or decrease in the purchasing power of the
currency, which the parties could not have reasonably foreseen, should be the
purchasing value of the currency at the time of the establishment of the
obligation.
Example: Dylan borrowed from Chase P10,000.00 payable after ten (10) years.
On the maturity of the obligation, the value of P10,000.00 dropped to P7,000.00
because of inflation (or increased to P15,000.00 because of deflation).
Dylan must pay chase P15,000.00 (or P7,000.00) unless they agreed that Dylan shall
pay Chase P10,000.00 regardless of any extraordinary decrease or increase in the
purchasing power of the peso.
• Also, to apply the provision of Article 1250, there must be a declaration of

inflation or deflation by the Central Bank or else the creditors cannot demand an
increase, and debtors, a decrease of what is due to or from them.
Article 1251. Payment shall be made in the place designated in the

obligation.
There being no express stipulation and if the undertaking is to deliver a

determinate thing, the payment shall be made wherever the thing might be at the
moment the obligation was constituted.
In any. other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in
delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.
• It refers to the place for payment without prejudice to venue under the Rules of
Court.
PLACE OF PAYMENT (in successive and exclusive order)
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1. At the stipulated place;
2. At the place where the thing was when the contract was perfected - if no place
was agreed upon, and the thing to be delivered is specific;
3. At the domicile of the debtor - if there is no stipulation and the thing to be delivered
is generic.
• In No. 3, the creditor bears the expenses in going to the debtor’s place to accept
payment except if the debtor’s changes his domicile in bad faith or after he incurs
in delay.
DOMICILE – the place a person habitually resides and which he considers as his legal
residence.
Subsection 1 - Application of Payments
Article 1252. He who has various debts of the same kind in favor of one and
the same creditor, may declare at the time of making the payment, to which of
them the same must be applied. Unless the parties so stipulate, or when the
application of payment is made by the party for whose benefit the term has been
constituted, application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of

the payment is made, the former cannot complain of the same, unless there is a
cause for invalidating the contract.
APPLICATION OF PAYMENTS- is the specification of the debt to which the payment

of the debtor will be applied to, in case he has more than one debt of the same kind in
favor of one and the same creditor.
REQUISITES OF APPLICATION OF PAYMENTS

1. There must be one debtor and one creditor;
2. There must be two or more debts;
3. The debts must be of the same kind;
4. The debts to which payment made by the debtor has been applied must be due; and
5. The payment made must not be sufficient to cover all the debts.
GENERAL RULE:
The application of payments as to debts not yet due cannot be made unless:
a. there is a stipulation that the debtor may so apply; or
b. it is made by the debtor or creditor, as the case may be, for whose benefit the period
has been constituted.
RULES ON APPLICATION OF PAYMENTS

1. The debtor has the first choice - at the time of making payment (and not afterwards)
the debtor must indicate which particular debt is being paid; he cannot later on claim
that it should be applied to another debt.
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2. Once exercised, it is irrevocable, unless the creditor consents to the change.
3. The right to apply payment is merely directory – the creditor has the subsidiary right
to choose to which debt the payment will be credited.
4. Apply to the most onerous debt to the debtor among those due - in case the creditor
has not also made the application, or if the application is not valid.
5. If the debts due are of the same nature and burden - the payment shall be applied to
all of them proportionately.
6. The court will apply the payment according to the justice and equity of the case taking
into consideration all its circumstances:
a. if neither party has exercised its option; and
b. there is disagreement as to debts to which payment must be applied.
• The provisions of this article are understood to be without prejudice to the right
granted to the debtor by Article 1252, but only if the personal credit of the partner
should be more onerous to him.
• An application of payment made by the debtor without objection from the creditor
is binding upon the latter.
Examples:
1. Danica owes Cassandra as follows:
a. P3,000 payable on January 5;

b. P2,000 payable on January 15;
c. A specific bag woth P2,500 to be delivered on January 15;
d. P1,500 payable on January 30.
On January 15, Danica paid Cassandra P3,000. Danica may apply the P3,000 to
debt a, or to debt b and (if Cassandra does not object) to a portion of debt a.
If Danica paid only P1,500.00, she cannot choose to apply her payment to the
P3,000 debt because Cassandra cannot be compelled to receive partial payment.
Danica cannot also properly apply her payment to debt (c) because it is not of the
same kind. She must deliver the thing agreed upon.
Neither can she apply it to debt (d) which is not yet due unless there is a
stipulation to the contrary or she has the benefit of the period.
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2. If Danica does not make a choice, Cassandra can make the designation in the receipt
with the consent of Danica. Danica may change the application made by Cassandra.
3. The acceptance by Danica of the receipt given by Cassandra is regarded by the law
as contract in itself independent of the principal obligation. Her acquiescence to the
application made by Cassandra amounts to an assent to such application, which she
may no longer revoke or change, “unless there is a cause for invalidating the contract”
as where the consent of Danica in accepting the receipt was vitiated by reason of fraud,
mistake, etc.
Article 1253. If the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been covered.
GENERAL RULE
The payment should be applied first to the interest, with the balance, if any, to the
principal.
EXCEPTION
1. If the parties stipulates otherwise.
2. Waiver by the creditor.
Article 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other circumstances,
the debt which is most onerous to the debtor, among those due, shall be deemed
to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied
to all of them proportionately.
RULES IN CASE NO APPLICATION WAS MADE

BY BOTH DEBTOR AND CREDITOR
1. If no application was made by both debtor and creditor, then apply the payment to the
most onerous debt, and
2. If the debts are of the same nature and burden, to all of them proportionately.
Subsection 2 - Payment by Cession
Article 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for the net proceeds of the thing
assigned. The agreements which, on the effect of the cession, are made between
the debtor and his creditors shall be governed by special laws.
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PAYMENT BY CESSION - is the transfer by the debtor of all his properties to the
creditor so that they may sell them and apply their proceeds to the payment of their
credits.
REQUISITES OF PAYMENT BY CESSION

1. There must be two or more creditors;
2. The debtor must be (partially) insolvent;
3. The assignment must involve all the properties of the debtor; and
4. The cession must be accepted by the creditors.
EFFECTS OF PAYMENT BY CESSION

1. the assignment does not make the creditors the owners of the property of the debtor,
unless there is a stipulation to the contrary; and
2. the debtor is released from his obligation only up to the net proceeds of the sale of
the property assigned - In other words, the debtor is still liable if there is a balance.
BASIS DATION IN PAYMENT PAYMENT BY CESSION

No. of creditor Only 1 Several creditors
Presupposition Debtor not insolvent Debtor insolvent
Ownership of thing Transferred to the Creditor only acquires the
creditor right to sell the thing and
apply the proceeds to
their credits pro rata
Nature Novation Not a novation
Governing law Law on sales Law on sales
Subsection 3. — Tender of Payment and Consignation
Article 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place
of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.
TENDER OF PAYMENT – is the offering of the debtor of the prestation to the creditor in
• The prestation should be in the possession of the debtor at the time of offer or
tender.
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CONSIGNATION - is the deposit of the prestation with the proper court when the
creditor does not desire, or refuses to accept payment, or cannot receive it, after
complying with the formalities required by law.
• It is always judicial and it generally requires a prior tender of payment.
• Since tender of payment must be made before consignation, the tender has to be
proved by the debtor in the proper case. However, in cases when tender is not
required, only prior notice to interested persons of the consignation need be
proved.
• There is no delay on the part of the debtor if the creditor, without legal
justification, informs the former that the latter will not accept the former’s tender
of payment.
Example: David borrowed money from Chris. When the obligation became due,
David offers to pay the obligation but Chris, without any justifiable reason, refuses to
accept the payment. Until he has made a valid consignation, David’s obligation will not
be extinguished.
REQUIREMENTS FOR VALID TENDER OF PAYMENT

1. Tender of payment must comply with the rules on payment.
Example: An offer of a check in payment of a debt may be refused by the creditor, as it

is not a valid tender, for a check, even a manager’s check, is not legal tender.
2. It must be unconditional and for the whole amount.
3. It must be actually made.

• It is not enough that the debtor has the ability to pay, like he has the money in his
wallet to pay his obligation. The payment should actually be made.
WHEN CONSIGNATION IS VALID EVEN WITHOUT A PRIOR TENDER

1. When the creditor had already informed the debtor that the former would not accept
any payment.
2. The creditor is absent or unknown or does not appear at the place of payment. - the
creditor need not be judicially declared absent.
3. When the creditor is incapacitated to receive payment at the time it is due - this rule is
not applicable if the creditor has a legal representative and this fact is known to the
debtor.
4. When, without just cause, the creditor refuses to give a receipt.
5. When two or more persons claim the same right to collect
6. When the title (written document) of the obligation was lost.
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Article 1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the fulfillment of
the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance

with the provisions which regulate payment.
REQUISITES OF A VALID CONSIGNATION

1. existence of a valid debt which is due;
2. tender of payment by the debtor and refusal without justifiable reason by the creditor
to accept it (except if tender is excused);
3. previous notice of consignation to persons interested in the fulfillment of the
obligation;
4. consignation of the thing or sum due; and
5. subsequent notice of consignation made to the interested parties.
• Compliance with all the essential requisites must be complied with, without any
conditions, so that consignation becomes valid and effectual.
• Payment is void if there was no prior notice given to the persons interested in
the fulfillment of the obligation*
*Examples: guarantors, mortgagees, solidary debtors, solidary creditors.

• The first notice is needed to allow the creditor the opportunity to think well about
his prior refusal to accept payment,as he will be the one to shoulder the
expenses of the consignation and the risk of loss of the thing consigned.
• As such, the notice should not only state a warning that the payment will be
made in court, but it should also indicate the date and hour of the consignation
and the name of the court where the same would be made.
• Tender of payment and notice of consignation may be made in the same act.
• To be valid, a consignation should comply with the provisions regulating

payment, such as that payment should be made in legal tender.
• Articles 1256 and 1257 do not apply to tender of payment into court of the
amount due on a judgment .
Article 1258. Consignation shall be made by depositing the things due at

the disposal of judicial authority, before whom the tender of payment shall be
proved, in a proper case, and the announcement of the consignation in other
cases.
• The consignation having been made, the interested parties shall also be notified
thereof.
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• For a valid consignation, the deposit of the thing due must be with the proper
judicial authority, such as to the proper court, and not just anywhere else,
example to a bank unless a special law requires otherwise.
• The effect of consignation is retroactive. Payment is deemed made at the time of

the deposit of the thing in court or when it was placed at the disposal of the
judicial authority.
• A tender of payment which is not followed by consignation will not stop the
accruing of interest, as a tender of payment has to be accompanied or followed
by consignation to result to a valid payment.
• Consignation does not apply unless there is an obligation to pay. No need for
consignation if what exist is a right or a privilege, such as a mortgage-debtor (or
his successor-in-interest) who desires to redeem the mortgaged property.
2ND NOTICE AFTER CONSIGNATION - to allow the creditor to withdraw the thing or
sum deposited or take possession in case he accepts the consignation.
Article 1259. The expenses of consignation, when properly made, shall be

charged against the creditor.
However, if the consignation is not properly made, the consignation

expenses shall be charged to the debtor.
• If the consignment was properly done in accordance with the requirement of the
law, the expenses of the consignation shall be paid by the creditor, for the need
to consign was to due his non-acceptance of the prestation.
• On the other hand, if the consignment was improperly done, it shall be charged
to the debtor as the consignment is not valid and does not produce payment.
WHEN CONSIGNATION DEEMED PROPERLY MADE

1. When the creditor accepts the thing or sum deposited, without objection, as payment
of the obligation;
2. When the creditor questions the validity of the consignation, and the court, after
hearing, declares that it has been properly made; and
3. When the creditor neither accepts nor questions the validity of the consignation, and
the court after hearing, orders the cancellation of the obligation.
• The creditor may accept the consignation with reservation or qualification.

Article 1260. Once the consignation has been duly made, the debtor may
ask the judge to order the cancellation of the obligation.
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Before the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
force.
• If the consignation was done properly, the debtor may ask the court to cancel the
obligation.
WHEN DEBTOR MAY WITHDRAW THE THING DEPOSITED

1. Before the creditor has accepted the consignation; or
2. Before a judicial declaration that the consignation has been properly made, the
obligation remaining in force.
Article 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every preference which
he may have over the thing. The co-debtors, guarantors and sureties shall be
released.
EFFECT OF WITHDRAWAL OF THING CONSIGNED:*

1. Obligation subsists as if before acceptance or cancellation;
2. Creditor shall lose every preference which he may have over the thing;
3. Co-debtors (meaning, solidary debtors**), guarantors, and sureties will be released
from their obligation.
*Withdrawal was done after the creditor’s acceptance of the consignation or after the
court’s order cancelling the obligation.
**Solidary debtors - are released only from their solidary liability, but not from their
shares of the obligation, since unlike guarantors and sureties, they are also principal
debtors.
Examples:
1. Dom borrowed money from Chen in the amount of P100,000.00 with Glen as the
guarantor. When the obligation became due, Dom offered payment but Chen refused to
accept the same. So, Dom made a consignation. Afterwards, Dom withdrew the deposit
after securing the consent of Chen.
Under Article 1261, Chen shall lose whatever preference he may have over the amount
and Glen, the guarantor, shall be released.
2. If, in the given example, Dom and Glen are solidarily liable to Chen, Glenda is
released only from his solidary liability but he is still liable to Chen for P50,000.00, his
share in the obligation.
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Section 2 - Loss of the Thing Due
Article 1262. An obligation which consists in the delivery of a determinate

thing shall be extinguished if it should be lost or destroyed without the fault of
the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the obligation
requires the assumption of risk.
• The loss of the thing should have occurred after the obligation was incurred.
“the thing is lost” – is when it perishes, or goes out of commerce or disappears in

such a way that its existence is unknown or it cannot be recovered.
WHEN LOSS OF THING WILL EXTINGUISH AN OBLIGATION TO GIVE

1. The obligation is to deliver a specific or determinate thing;
2. The loss of the thing occurs without the fault of the debtor;
3. The debtor is not guilty of delay.
WHEN LOSS OF SPECIFIC THING WILL NOT EXTINGUISH LIABILITY

(EVEN WITHOUT FAULT AND DELAY)
1. when the law so provides;
2. when the stipulation so provides;
3. when the nature of the obligation requires the assumption of risk; and
4. when the obligation to deliver a specific thing arises from a crime.
Article 1263. In an obligation to deliver a generic thing, the loss or

destruction of anything of the same kind does not extinguish the obligation.
• It is based on the principle genus nunquam perit which means that a generic
thing never perishes.
• While the debtor can still be compelled to deliver a thing of the same kind, the
creditor, however, cannot demand a thing of superior quality and neither can the
debtor deliver a thing of inferior quality.
Examples:
1. Sam promised to deliver 50 sacks of rice to Brad. The 50 sacks of rice which
S am plans to deliver were lost in a flood.
Sam is still liable to Brad because his obligation is to deliver a generic thing, and
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it can still be paid from other sources.
2. How about if the obligation of Sam is to deliver 50 sacks of rice from the
harvest made by him and such harvest is completely lost or destroyed, is the obligation
extinguished?
Yes, because the rice stipulated to be delivered is confined to a particular class

and may thus be considered a determinate thing.
Article 1264. The courts shall determine whether, under the circumstances,
the partial loss of the object of the obligation is so important as to extinguish the
obligation.
• In case of disagreement between the parties, the court will decide whether the
partial loss is so big so as to almost be a complete or total loss.
Example: Sean obliged himself to deliver to Brent a specific car. The car met an
accident that only its four wheels were left intact. The partial loss is so important as to
extinguish the obligation.
If the loss is due to the fault of Sean, he shall be obliged to pay the value of the
car with indemnity for damages.
If the damage to the car was only a minor paint scratch, the injury is clearly not
that big to be considered cause for extinguishment of the obligation. Even if there was
fault on the part of Sean, he can still deliver the car with payment for damages, if any,
suffered by Brent.
Article 1265. Whenever the thing is lost in the possession of the debtor, it
shall be presumed that the loss was due to his fault, unless there is proof to the
contrary, and without prejudice to the provisions of Article 1165. This
presumption does not apply in case of earthquake, flood, storm or other natural
calamity.
• It refers to a presumption that if the thing to be delivered was lost while in the
possession of the debtor, the lost was due to his fault.
• The disputable presumption of debtor’s fault does not apply to a natural calamity.
• The burden of proof lies with the debtor to show that he was not at fault.
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• Even if the debtor was not at fault, he is still liable if he was in delay or if he
promised the same thing to two or more persons who do not have the same
interest.
Examples:
1. Brigida borrowed the cellphone of Leticia, promising to return it after one. On day.
The following day, Brigida told Leticia that the cellphone was stolen and that she was
not at fault. That is not enough to extinguish Brigida’s obligation. Presumption is that
the loss was due to her fault. Thus, she is liable unless she proves the contrary.
2. Suppose the house of Brigida was destroyed because of fire. It is admitted that there
was a fire and it was accidental and that the cellphone was in the house at the time it
occurred. Here, Brigida is not liable unless Leticia proves fault on the part of Brigida.
Article 1266. The debtor in obligations to do shall also be released when

the prestation becomes legally or physically impossible without the fault of the
obligor.
• Article 1266 is applicable only to obligations to do.
• If, without the obligor’s fault, an obligation to do, after its constitution, becomes
legally or physically impossible, the obligation is extinguished.
• The debtor, however, must first return to the creditor whatever advances he may
have received from the latter.
• The obligation should have become impossible to comply after its constitution, for
if before, the obligation is void.
KINDS OF IMPOSSIBILITY
1. PHYSICAL IMPOSSIBILITY - If the impossibility is due to the fault or negligence of
the obligor, he shall be liable for damages.
2. LEGAL IMPOSSIBILITY – impossibility is brought about by provision of law, although

KINDS OF IMPOSSIBILITY
1. NATURAL IMPOSSIBILITY – the impossibility of performance is due to the inherent
nature of the thing to be done and not because it is beyond the ability of the debtor to
comply.
2.
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Article 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
• As another exception to the obligatory force of contracts, this article states that if
compliance with the obligation has become so difficult that it is obviously beyond
the contemplation of both parties, the court can release the debtor either
completely or partially from fulfilling the obligation.
• Article 1267 contemplates an element of the unforeseen or fortuitous event
• This article also applies to a real obligation to give or deliver a thing, not only to a
personal obligation.
Example: Al is obliged to make a house on top of a cliff. A very strong earthquake

made the cliff unsafe for habitation. Note: The obligation is not impossible of
performance.
For this reason, Al may be released, in whole or in part, from his obligation to continue
with the construction.
• The court can only either release or not release a party from a contract, but not to
change the terms of the contract.
Article 1268. When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless the thing having been
offered by him to the person who should receive it, the latter refused without
justification to accept it.
• This article refers to an instance wherein despite fortuitous event being the cause
of the loss of the specific thing to be delivered, the debtor is not excused from
liability, as the obligation to deliver arose from a criminal offense.
Example: Debtor is liable for the price of the horse he stole, even if its loss before
he returned it to the creditor/owner was due to a fortuitous event.
The obligation continue to exist except when the creditor, without justifiable
reason, refused to accept the thing (example: the stolen horse), after it had been offered
to him.
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Article 1269. The obligation having been extinguished by the loss of the
thing, the creditor shall have all the rights of action which the debtor may have
against third person by reason of the loss.
• It gives the creditor the right to go after the third person responsible for the loss of
the thing.
Example: Sen is obliged to deliver his computer to Ben. However, it was

destroyed by Xen. Ben has a right to demand payment from Xen. Ben is the one with
the right to sue Xen since Sen’s obligation is now extinguished. Sen should not unduly
profit at the expense of Ben.
Section 3 - Condonation or Remission of the Debt
Article 1270. Condonation or remission is essentially gratuitous, and

requires the acceptance by the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore, comply with the
forms of donation.
CONDONATION OR REMISSION - is the gratuitous forsaking by the creditor of his right

against the debtor causing the cancellation, wholly or partly, of the latter’s obligation.
Example: Darryl is indebted to Clona in the amount of P2,000. Upon due date,
Clona told Darryl not to pay the debt anymore, as she was condoning it. Clona thanked
Darryl.
In this case, the liability was extinguished by remission.
REQUISITES OF CONDONATION/REMISSION
1. It must be gratuitous;
2. It must be accepted by the obligor;
3. The parties must have capacity;
4. It must not be inofficious; and
5. If made expressly, it must comply with the forms of donation.
• For remission to be valid, the obligation should still be demandable at the time of
condonation.
• Clearer and more convincing evidence is needed to prove remission, as

compared to what is needed to establish payment.
KINDS OF REMISSION
1. AS TO ITS EXTENT:
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a. Complete - when it entire obligation is condoned;
b. Partial - when only a portion the entire obligation is remitted.
2. AS TO ITS FORM:
a. Express - when it is expressed either verbally or in writing; or
b. Implied - when it can only be inferred from conduct.
3. AS TO ITS DATE OF EFFECTIVITY:

a. Inter vivos - when remission will take effect donor while the donor is still alive;
or
b. Mortis causa - when condonation will take effect upon the death of the donor.
It must comply with the formalities of a will.
LEGITIME – is the portion of the testator’s property which he cannot dispose of

because the law has reserved it for certain heirs.
Article 1271. The delivery of a private document evidencing a credit,

made voluntarily by the creditor to the debtor, implies the renunciation of
the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious,

the debtor and his heirs may uphold it by proving that the delivery of the
document was made in virtue of payment of the debt.
• If the creditor voluntarily delivers a private document evidencing a credit, the

presumption is that he is renouncing his action against the debtor.
• However, evidence may be given to show otherwise, for example when it was
delivered only for examination.
• Extent of remission – if remission is applicable to a joint obligation, it pertains
only to the share of the debtor who is in possession of the document; to a
solidary obligation, applicable to the total obligation.
• The presumption in this article applies only to private document.
• The remission assumed becomes null and void upon proof that it is inofficious.
Article 1272. Whenever the private document in which the debt

appears is found in the possession of the debtor, it shall be presumed that
the creditor delivered it voluntarily, unless the contrary is proved.
• Art. 1272 refers to a presumption of voluntary delivery.
• The presumption is that the document was voluntarily delivered by the creditor if
it is later found in the hands of the debtor and it is not known how he came into
possession of the same.
Example: Dean owes Cain P10,000.00 supported by a promissory note given to
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Cain.
If the promissory note is voluntarily delivered to Dean, it is presumed that the

debt was paid by Dean.
If it is determined that Dean has not yet paid Cain, that the obligation has been
remitted by Cain shall be the presumption.
Suppose it is not known how Dean came into possession of the promissory note.
The presumption is that it was voluntarily delivered by Cain, unless Cain proves the
contrary.
Article 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in force.
Article 1274. It is presumed that the accessory obligation of pledge has
been remitted when the thing pledged, after its delivery to the creditor, is found in
the possession of the debtor, or of a third person who owns the thing.
• In case the thing pledged is later found in the hands of the debtor or the third
person, only the accessory obligation of pledge is presumed remitted, not the
obligation itself. This means that the debtor remains indebted but his obligation to
return the thing pledged is extinguished, unless evidence proves otherwise.
• The presumption is applicable only if the thing pledged, after its delivery to the
creditor, is found in the possession of the debtor or third person who owns it.
Section 4 - Confusion or Merger of Rights
Article 1275. The obligation is extinguished from the time the characters of
creditor and debtor are merged in the same person.
CONFUSION OR MERGER - is the meeting in one person of the qualities of creditor

and debtor with respect to the same obligation.
REQUISITES OF CONFUSION
1. It must take place between the principal debtor and creditor; and
2. It must be complete and definite.
Example: Daewon borrowed P1,000 from Chae-yung for which Daewon

executed a negotiable promissory note in favor of Chae-yung. Chae-yung indorsed the
note to Shin Hye who, in turn, indorsed it to Yoo-na. Afterwards Yoo-na gave the note to
Daewon as payment for his services.
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As a result, Daewon is the creditor of himself, thus his obligation is now
extinguished by merger.
Article 1276. Merger which takes place in the person of the principal debtor
or creditor benefits the guarantors. Confusion which takes place in the person of
any of the latter does not extinguish the obligation.
• If confusion happens in the person of the principal debtor or creditor, then the
obligation is extinguished, in accordance with the principle that the accessory
follows the principal.
Example: Dongmin owes Chunsol P10,000 with Gaerin as guarantor. Merger in

the person of either Dongmin or Chonsul shall free Gaerin from liability as guarantor.
• However, if the merger is only in the person of the guarantor, only the guaranty
obligation is extinguished. The principal obligation subsists, for the principal does
not follow the accessory.
Example: In the given case above, if Chonsul assigns his credit to Shin Li, who,
in turn, assigns the credit to Gaerin, the guarantor, only the contract of guaranty is
extinguished. Dongmin’s principal obligation remains. Gaerin is now the new creditor
who can demand payment from Dongmin.
Article 1277. Confusion does not extinguish a joint obligation except as

regards the share corresponding to the creditor or debtor in whom the two
characters concur.
• In a joint obligation, confusion in the person of any debtor or creditor will

extinguish only the share corresponding to the creditor or debtor in whom the two
characters concur.
Example: Alvares, Baltazar, and Corpuz are jointly liable to Diaz in the amount of
P18,000.00 evidenced by a negotiable promissory note. Diaz endorsed the note to
Enriquez, who, in turn endorsed it to Alvarez.
As such, because of confusion in his person as a debtor-creditor, Alvarez’s

share in the obligation is extinguished. However, as there is no confusion as to them,
the obligation of Baltazar and Corpuz remains. Alvarez then becomes the new creditor
to whom B and C has to pay amount of P6,000.00 each.
• If a merger happens in the person of one of the solidary debtors, the entire
obligation shall be extinguished, for in a solidary obligation, there is only one
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obligation and every debtor is individually responsible for the payment of the
whole obligation.
• However, the one who made the payment may claim reimbursement from his co-
debtors for the shares which correspond to them.
Example: In the above case, if the obligation of Alvarez, Baltazar, and Corpuz is
solidary, the endorsement to Alvarez extinguishes the entire obligation of P18,000.00. A
can demand reimbursement from Baltazar and Corpuz based on an implied contract of
reimbursement.
Section 5 - Compensation
Article 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.
COMPENSATION - is the extinguishment to the concurrent amount of the debts of two

persons who, in their own right, are reciprocally principal debtors and creditors of each
other.
Example: Aldren owes Baldwin the amount of P10,000.00. Baldwin owes Aldren
the amount of P7,000.00.
If both debts are already due and payable, compensation can take place partially
to the amount of P7,000.00, with the balance of P3,000 still due from Aldren. It is total
compensation if the two debts are of the same amount.
COMPENSATION VS CONFUSION
BASIS COMPENSATION CONFUSION
No. of Parties 2 different persons 1 creditor and debtor of
himself
No. of Obligations 2 1
Payment indirect impossible
Existence in joint and Yes yes
solidary obligations
COMPENSATION VS PAYMENT
BASIS COMPENSATION PAYMENT
Effectivity By Operation of law By act of the parties
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Capacity to give/receive Not required Required: debtor-free
disposal of the thing due &
capacity to alienate it;
creditor- capacity to receive
payment
Partial extinguishment Allowed by law Payment should be
complete and indivisible.
COMPENSATION VS COUNTERCLAIM
BASIS COMPENSATION COUNTERCLAIM
Requirement for effectivity Takes place by mere Must be pleaded to be
operation of law effectual
Requirement for similarity Debts- both in money; Requirement -not
of things due Consumable things - of the applicable
same kind and quality
Both debts should be Required Not required
liquidated
KINDS OF COMPENSATION
1. By its effect or extent:
A. TOTAL - when both obligations are of the same amount and are entirely
extinguished; or
B. PARTIAL - when the two obligations are of different amounts and a balance
remains. The extinctive effect of compensation will be partial only as regards the larger
debt.
2. By its cause or origin:

A. LEGAL - when it takes place by operation of law when all the requisites are
present even without the knowledge of the parties;
B. CONVENTIONAL OR VOLUNTARY - when it takes place by agreement of
the parties;
C. JUDICIAL - when it takes place by order from a court in a litigation;
D. FACULTATIVE - when it can be set up only by one of the parties.
Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
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(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due time to the debtor.
REQUISITES OF LEGAL COMPENSATION

1. The parties are principal creditors and principal debtors of each other.
Examples:
1. Abby owes Bobby P100,000.00. Bobby owes Abby P100,000.00. There can
be compensation as Abby and Bobby are principal debtors and creditors of each other.
2. Abby owes Bobby P100,000.00 with Cally as guarantor. Bobby owes Cally
P100,000.00. No compensation can exist between Bobby and Cally for Cally is only
subsidiarily liable to Bobby. Cally can then demand payment from Bobby.
2. Both debts consist in a sum of money, or of consumable things of the same

kind and quality.
Examples:
1. Addy owes Buddy P500,000.00. Buddy owes Addy a car with a value of
P500,000.00. Compensation will not take place as the obligations are of different kinds.
3. The two debts are due or demandable.
EXCEPTIONS:
1. When the obligation is payable on demand, the obligation is not yet due where no
demand has not been made.
2.A debt that has prescribed is no longer demandable and consequently, cannot be
compensated, unless the compensation has taken place before the lapse of the period
of prescription.
3. Natural obligations are not legally demandable.
4. The two debts are liquidated

Example: Arlilie owes Beverly P100,000.00. Beverly also owes Arlilie the share of
the latter in a business the amount of which is still to be ascertained.
Compensation will not take place as the debt of Beverly is not liquidated. If part
of the debt of Beverly has been liquidated, compensation takes place with respect to
that part without waiting for the liquidation of the rest.
5. No retention or controversy has been commenced by a third person.

• compensation will not take place where there is waiver.
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RETENTION - exists when the credit of one of the parties is subject to the satisfaction of
the claim of a third person.
CONTROVERSY - exists when a third person claims he is the creditor of one of the
parties.
• Both retention and controversy should be communicated “in due time’’ to the
debtor or during the period before legal compensation is supposed to take place.
• Legal compensation exists as soon as its requisites exist even without any
apparent intention of the parties.
Example: Allison is indebted to Benzon fo rP100,000.00. Benzon also owes

Allison P100,000.00. Benzon is also liable to Carzon P100,000.00. Carzon garnished of
the credit of Benzon against Allison and informs Allison not to pay Benzon P100,000.00
as Carzon has a better right to the said amount.
In this case, compensation cannot take place between Allison and Benzon in
view of a controversy raised by Carzon, a third person. In the meantime, the
compensation is suspended.
If Carzon loses the case, compensation shall be presumed to take effect as soon
as the requisites for legal compensation exist.
Article. 1280. Notwithstanding the provisions of the preceding article, the

guarantor may set up compensation as regards what the creditor may owe the
principal debtor.
• Despite guaranty being just a subsidiary liability, the guarantor still has the
right to set-up compensation between the creditor and debtor, as he, the
guarantor, is also benefited by the extinguishment of the obligation.
Article 1281. Compensation may be total or partial. When the two debts are
of the same amount, there is a total compensation.
• It is total compensation when the two debts are of equal amount.

• Compensation is total to the lesser obligation and partial only to the bigger
debt, they are of unequal amounts.
Article 1282. The parties may agree upon the compensation of debts which
are not yet due.
• An exception to the general rule.
GENERAL RULE:
• Only debts which are due and demandable can be compensated.
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VOLUNTARY OR CONVENTIONAL COMPENSATION – can take place although not
all the requisites for legal compensation are present. What is important is that the
contract of the parties, which declares the compensation, is valid.
REQUISITES FOR VOLUNTARY COMPENSATION

(1) Both creditor and debtor can dispose their individual credits; and
(2) Agreement of both parties to mutually extinguish their credits.
Article 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to said
damages and the amount thereof.
• The court may also declare compensation by final judgment in a suit. A

party’s obligation may be set off against his claim for damages from the
other party, after showing proof of their respective claims against each
other.
Article 1284. When one or both debts are rescissible or voidable, they may
be compensated against each other before they are judicially rescinded or
avoided.
• Rescissible and voidable obligations may be compensated against each

other before they are rescinded or annulled.
• This is because both obligations are still valid before their rescission or
annulment.
Example: Aika borrowed from Baron P100,000.00. Afterwards, Aika employed

fraud to make Baron sign a promissory note that Baron is indebted to Aika for an equal
amount.
Aika debt is valid but Baron’s obligation is voidable. As such, before it is nullified,
Baron’s debt, being still valid, may be compensated if all the requisites for legal
compensation are present.
Aika is still liable although compensation had already taken place before Baron’s
debt is subsequently annulled by the court. This is because the effect of annulment is
retroactive.
Article 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the assignee
the compensation which would pertain to him against the assignor, unless the
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assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set
up the compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment.
• If after legal compensation takes effect, the creditor transfers his rights to
the credit to a third person, the debtor has the right to the defense of
compensation.
• The third person/assignee’s remedy or right of action shall be against the

creditor/assignor.
• The debtor, on the other hand, may waive his right to compensation.
Example: Abumi Zaku owes Badaku P20,000.00 due last Saturday. Badaku is
also indebted to Abumi for P10,000.00 due also last Saturday.
Both debts are extinguished up to the amount of P10,000.00. Thus, Abumi still
owes Badaku P10,000.00. Now, if Badaku assigns his right to Cavalier, the latter can
collect only P10,000.00 from Abumi.
However, if Abumi gave his consent to the assignment before it was made or
afterwards, Abumi loses the right to set up the defense of compensation. So Abumi is
still liable to Cavalier for P20,000.00 but he can still collect the P10,000.00 owed by
Badaku. The compensation is deemed not to have taken place.
WHERE COMPENSATION HAS TAKEN PLACE AFTER ASSIGNMENT

1. The assignment is made with the consent of the debtor;
Example: Ada is indebted to Blue for P30,000.00 due January 15. Blue owes Ada
P10,000.00 due January 15. Blue assigned his right to Chad on January 1 with the
consent of Ada.
On January 15, Ada cannot set up against Chad, the assignee, the
compensation which would pertain to him against Blue, the assignor. In other words,
Ada is liable to Chad for P30,000.00 but he can still collect the P10,000.00 debt of Blue.
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On the other hand, if Ada, while consenting to the assignment, reserved her right
to the compensation, she would be liable only for P20,000.00 to Chad.
2. The assignment is made without the consent but with the knowledge of the
debtor; and
Example: Ada owes Blue P10,000.00 due January 1. Blue owes Ada P20,000.00
due January 10. Ada owes Blue P10,000.00 due January 15.
Ada assigned his right to Chad on January 12. Ada notified Blue but the latter did
not give his consent to the assignment. How much can Chad collect from Blue?
Blue can set up the compensation of debts on January 10 which was before the
cession on January 12. There being partial compensation, the assignment is valid only
up to the amount of P10,000.00.
But Blue cannot raise the defense of compensation with respect to the debt of
Ada due on January 15 which has not yet matured. So, on January 12, Blue is liable to
C for P10,000.00. Come January 15, Ada will be liable for his debt of P10,000.00 to
Blue.
3. The assignment is without the knowledge of the debtor.

Example: In the case above. let us assume that the assignment was made
without the knowledge of Blue who only learned of the assignment on January 16.
Blue can set up the compensation of credits before and after the assignment.
The crucial time is when Blue acquired knowledge of the assignment and not the date of
the assignment. If Blue learned of the assignment after the debts had already matured,
he can raise the defense of compensation; otherwise, he cannot.
Article 1286. Compensation takes place by operation of law, even though

the debts may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment.
• This article refers to the expenses of monetary exchange, in money debts, and
expenses of transportation, in obligation to deliver things.
Examples:
1. Allen owes Bill $10,000.00 payable in New York. Bill owes Allen P504,700.00
(equivalent amount) payable in Manila. If Allen claims compensation, he must pay for
the expenses of exchange.
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2. Allen obliged himself to deliver to Bill 100 sacks of rice in Cebu City. Bill is also
bound to deliver to Allen 100 sacks of rice of the same kind in Laguna. The expenses
for transportation of the rice to Laguna amount to P20,000.00 and to Batangas,
P10,000.00.
If Allen claims compensation, he must indemnify Bill the amount of P10,000.00

for the expenses of transportation of the rice to Cebu City.
Article. 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of paragraph 2
of Article 301.
Article 1288. Neither shall there be compensation if one of the debts

consists in civil liability arising from a penal offense.
INSTANCES WHEN LEGAL COMPENSATION NOT ALLOWED BY LAW

1. Where one of the debts arises from a depositum .
DEPOSITUM – happens when a someone receives another person’s thing with the
obligation of keeping it safe and returning it to the owner afterwards.
Example: Aini is indebted to Barni P10,000.00. Barni, on the other hand, also
owes Aini the amount of P10,000.00 which is the value of a necklace deposited by Aini
with Barni, which Barni was not able to return.
The depositary, Barni, cannot claim legal compensation even if Aini fails to pay
his obligation. Barney’s remedy is to file an action against Aini for the recovery of the
amount of P10,000.00.
However, Aini can set up compensation on her deposit against Barni’s debt. This
benefit, given by law, is granted only to Aini, as depositor, and can be waived by him.
2. Where one of the debts arises from a commodatum
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COMMODATUM - is a gratuitous contract whereby one of the parties delivers to
another something not consumable so that the latter may use the same for a certain
time and return it.
Example: In the preceding example, if Barni borrowed the necklace of Aini, he

cannot refuse to return the necklace because of compensationas no compensation can
take place when one of the obligations arises from a commodatum.
Aini, on the other hand, can assert compensation of the value of the necklace
against the credit of Barni.
3. Where one of the debts arises from a claim for support due by gratuitous title.
Example: Aini, a minor, borrowed money in the amount of P2,000 from his father.
Barni cannot claim compensation of his obligation to support Aini against the amount
owed by Aini to him. This is for the reason that the right to receive support cannot be
compensated with what Aini owes Barni for the support is essential to the life of the
recipient.
4. Where one of the debts consists in civil liability arising from a penal offense.
Example: Aini is indebted to Barni P10,000.00. Barni stole the bracelet of Aini
worth P10,000.00. In this case, compensation by B is not proper.
But the offended party, Aini, can claim the right of compensation. The compensation
which is not allowed in Article 1288 refers only to the accused but not to the victim of the
crime.
Article 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall apply
to the order of the compensation.
• In case the debtor has several obligations susceptible of compensation,

he should inform the creditor to which of these debts he wants to apply his
payment, as failure of notice will lead to application of the amount paid to
the most onerous debt.
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Example: Akira owes Bo the following amounts:
1. P10,000.00 without interest due today;
2. P10,000.00 with interest of 10% due also today; and
3. P10,000.00 with interest of 12% due yesterday.
B owes A P10,000.00 due today.
Akira must specify to Bo to which of the three debts should the payment be
compensated. If she is unable to notify Bo, then the latter should apply the
compensation to the third obligation of Akira, namely, the obligation bearing the 12%
interest because it is the most onerous obligation.
Article 1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors and debtors are not aware of
the compensation.
• Neither consent nor conscious intent of the parties are needed for legal
compensation to take effect, as long as all its requisites are present.
• It takes effect even without the knowledge or against the will of the parties.
• Full legal capacity of parties, to give or to receive, as the case may be, is
also not required.
• The effect of compensation retroacts to the exact day when all the
requisites mentioned by law concurred or are fulfilled.
Section 6 - Novation
Article 1291. Obligations may be modified by:

1. Changing their object or principal conditions;
2. Substituting the person of the debtor;
3. Subrogating a third person in the rights of the creditor.
NOVATION – it is the substitution or change of an obligation by another, which

extinguishes or modifies the first, either by changing its object or principal conditions, by
or substituting another in place of the debtor, or by subrogating a third person in the
rights of the creditor (8 Manresa 428).
PURPOSES OF NOVATION
1. To extinguish or modify an existing obligation; and
2. To substitute a new one in its place.
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• Whether novation is extinctive or only modificatory depends on the nature of the
change and the intention of the parties.
KINDS OF NOVATION
A. According to origin:
1. LEGAL - that which takes place by operation of law; or
2. CONVENTIONAL - that which takes place by agreement of the parties.
B. According to how it is constituted:

1. EXPRESS - when it is so declared in unequivocal terms;
2. IMPLIED - when the old and the new obligations are essentially incompatible
with each other.
C. According to extent or effect:

1. TOTAL OR EXTINCTIVE - when the old obligation is completely extinguished;
or
2. PARTIAL OR MODIFICATORY - when the old obligation is merely modified,
i.e., the change is merely incidental to the main obligation.
D. According to the subject:

1. REAL OR OBJECTIVE - when the object (or cause) or principal conditions of
the obligation are changed;
2. PERONAL OR SUBJECTIVE - when the person of the debtor is substituted
and/or when a third person is subrogated in the rights of the creditor; or
3. MIXED - when the object or principal condition of the obligation and the debtor
or the creditor or both the parties, are changed. It is a combination of real and personal
novations.
Article 1292. In order that an obligation may be extinguished by another

which substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point incompatible with
each other.
REQUISITES OF NOVATION
1. The existence of a previous valid obligation;
2. The intention or agreement and capacity of the parties to extinguish or modify the
obligation;
3. The extinguishment or modification of the obligation; and
4. The creation or birth of a valid new obligation.
• Although generally no words or writing is needed to give effect to a novation, it

must be clearly and unmistakably shown, either by express agreement or by the
acts of the parties, as novation is never presumed.
WAYS OF EFFECTING CONVENTIONAL NOVATION

1. By the express agreement of the parties or acts of equal or equivalent import; or
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2. By the irreconcilable incompatibility of the two obligations with each other in every
material respect – it can take place even in the absence of an express agreement.
Article 1293. Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in Articles 1236 and 1237.
KINDS OF PERSONAL NOVATION

1. SUBSTITUTION - when the person of the debtor is substituted; or
2. SUBROGATION - when a third person is subrogated in the rights of the creditor.
KINDS OF SUBSTITUTION
1. EXPROMISION - that which takes place when a third person of his own initiative and
without the knowledge or against the will of the original debtor assumes the latter’s
obligation with the consent of the creditor.
• There must be consent of the third person and the creditor and the old debtor
should be released from his obligation; otherwise, there is no expromision.
2. DELEGACION - that which takes place when the creditor accepts a third person to
take the place of the debtor at the instance of the latter.
• For delegacion to take effect, all the parties (the old debtor, the new debtor and
the creditor) must agree although the creditor may withhold approval.
• The consent of the creditor is a vital requirement in both expromision and

delegacion,
RIGHT OF NEW DEBTOR WHO PAYS

1. In expromision, payment by the new debtor gives him the right to beneficial
reimbursement under the second paragraph of Article 1236.
2. In delegacion, wherein the payment was made with the consent of the original debtor
or on his own initiative, the new debtor is entitled to reimbursement and subrogation
under Article 1237.
• To have a novation in the form of a substitution, it is necessary that the old

debtor be free from the obligation and the third becomes the new debtor. If the
original debtor is not released, there is no novation as the third person simply
becomes a co-debtor surety.
Example: 1. Debra informs Cedra that Xendra will pay Debra’s debt and Cedra
agrees. It does not automatically mean that there is delegacion in this case.
However, there is delegacion if Debra tells Cedra that Xendra will pay her debt and
she asks Cendra to release her from her obligation, to which Cedra agrees.
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2. If in the same example, it is Xendra who approaches Cedra and tells her that
Xendra will pay the debt of Debra, and Cedra agrees. Expromision does not exist
unless they agree that Debra shall be released from her obligation.
Article 1294. If the substitution is without the knowledge or against the will
of the debtor, the new debtor’s insolvency or non-fulfillment of the obligation
shall not give rise to any liability on the part of the original debtor.
Article 1295. The insolvency of the new debtor, who has been proposed by
the original debtor and accepted by the creditor, shall not revive the action of the
latter against the original obligor, except when said insolvency was already
existing and of public knowledge, or known to the debtor, when he delegated his
debt.
EFFECT OF NEW DEBTOR’S INSOLVENCY OR NON-FULFILLMENT OF

OBLIGATION
1. IN EXPROMISION - will not revive the action of the creditor against the old debtor,
even if the substitution is with the knowledge or consent of the original debtor.
2. IN DELEGACION - If the non-fulfillment of the obligation is due to other causes other

than insolvency, the old debtor is not liable.
GENERAL RULE:
The old debtor is not liable to the creditor in case of the insolvency of the new debtor.
EXCEPTIONS:
1. The said insolvency was already existing and of public knowledge (although it was
not known to the old debtor) at the time of the delegacion; or
2. The insolvency was already existing and known to the debtor (although it was not of
public knowledge) at the time of the delegacion.
• The exceptions are intended to prevent fraud on the part of the old debtor.
Example: Dante is indebted to Carlo for P10,000.00. Dante proposed to Carlo

that Xenna would substitute him as debtor. Carlo agreed to the proposal. If, at the time
of the delegacion, Xenna was already insolvent but her insolvency was neither of public
knowledge nor known to Dante , then Dante is not liable. Neither is Dante liable if the
insolvency of Xenna arose after he delegated his debt.
It is believed that Dante is also not liable if Carlo had knowledge that Xena was
insolvent at the time the debt was delegated to him.
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Article 1296. When the principal obligation is extinguished in consequence
of a novation, accessory obligations may subsist only insofar as they may benefit
third persons who did not give their consent.
• An accessory obligation created in favor of a third person will remain in force,

despite the extinguishment of the original obligation because of novation, unless
said third person gives his consent to the novation.
Example: Aiza owes Beth P20,000.00 with interest at 12%. Beth owes Claire
P2,400.00. The parties agreed that Aiza would pay the interest of P2,400.00 to Claire.
In this case, aside from the principal obligation of Aiza, there is also a stipulation in favor
of Claire, a third person. Subsequently, Aiza and Beth executed another contract
agreeing that Aiza instead would deliver to Beth a personal computer in payment of the
loan.
The accessory obligation to pay the interest of P2,400.00 to Claire continue to

exist despite the novation, unless Claire gives her consent to the change.
Article 1297. If the new obligation is void, the original one shall subsist,
unless the parties intended that the former relation should be extinguished in any
event.
• This article emphasizes the pertinent requirement of a novation, that the new
obligation must be valid.
GENERAL RULE:
• If the new obligation is void, there is no novation. Therefore, the original one shall
subsist. The second obligation being inexistent, it cannot extinguish or modify the
first.
EXCEPTION:
• If the parties intended that the old obligation be extinguished in any event.
IF THE NEW OBLIGATION IS ONLY VOIDABLE

• Novation can still take place. However, from the moment the new obligation is
annulled, the novation shall be considered as not having taken place, and the
original one shall be enforced, unless the parties intends otherwise.
Article 1298. The novation is void if the original obligation was void, except
when annulment may be claimed only by the debtor, or when ratification validates
acts which are voidable.
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• There can be no novation in a void obligation as there is nothing to novate. But
novation is valid if the original obligation is only voidable or if the voidable
obligation is validated by ratification.
• Take note: Under Art. 1390, a voidable obligation is valid until it is annulled in
court.
Examples: 1. Sanza agreed to deliver prohibited drugs to Braganza. Later on, it

was agreed that Sanza would pay Braganza P50,000.00 instead of delivering the drugs.
Since the original obligation is void, the novation is also void.
2. If Sanza was induced through fraud committed by Braganza to sign a contract

whereby Sanza obliged himself to deliver a specific horse to Braganza. Later on, it was
agreed between Sanza and Braganza that Sanza would give Braganza P50,000.00
instead of the horse.
Due to defect in consent (vitiation), the original obligation of Sanza is voidable.

Since Sanza has not yet demanded its annulment, the second contract is valid.
3. In the same case above, supposing Sanza confirmed afterwards her obligation
to deliver the horse and Braganza’s thereto, her ratification cleanses the contract from
all its defects and makes it valid and, therefore, the novation is also valid.
Article 1299. If the original obligation was subject to a suspensive or

resolutory condition, the new obligation shall be under the same condition,
unless it is otherwise stipulated.
• If the original obligation is subject to a suspensive or resolutory condition, the

second obligation is also presumed subject to the same condition, unless
otherwise agreed upon by the parties in their contract.
• This rule was promulgated because the efficacy of the new obligation is
dependent on whether the condition which affects the old obligation is complied
with or not.
o SUSPENSIVE CONDITION – if it is not complied with, no obligation

arises; and
o RESOLUTORY CONDITION – if it is complied with, the old obligation is
extinguished.
Article 1300. Subrogation of a third person in the rights of the creditor is

either legal or conventional. The former is not presumed, except in cases
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expressly mentioned in this Code; the latter must be clearly established in order
that it may take effect.
SUBROGATION – is when a third person is placed in the shoes of the creditor with
regards to a certain claim or right in that the former acquires all the rights of the latter,
including remedies and securities.
KINDS OF SUBROGATION
1. CONVENTIONAL - when it takes place by express agreement of the original parties
(the debtor and the original creditor) and the third person (the new creditor); must be
clearly established in order that it may take place.
2. LEGAL - when it takes place without agreement but by operation of law; not
presumed except in the cases expressly provided by law.
Article 1301. Conventional subrogation of a third person requires the

consent of the original parties and of the third person.
• The consent of all the parties is an essential requirement in conventional

subrogation.
REASONS FOR REQUIREMENT OF CONSENT

1. DEBTOR - because he becomes obliged under the new obligation to a new creditor.
2. OLD OR ORIGINAL CREDITOR - because his right against the debtor is
extinguished.
3. NEW CREDITOR - because he may dislike or distrust the debtor.
ASSIGNMENT OF CREDIT – is defined as the process of transferring the right of the

assignor to the assignee who would then have the right to proceed against the debtor.
• Assignment may be gratuitous or onerous. If onerously done, assignment
has a similar effect to that of a sale.
BASIS CONVENTIONAL ASSIGNMENT OF CREDIT

SUBROGATION
Existence of credit Old credit extinguished and Transfer only of same credit
another one appears , which afterwards will not
be extinguished
Consent of the debtor Required Consent not required; only
notice to the debtor is
required.
Effectivity Starts from the time of With respect to the debtor –
novation itself starts from the date of
notification.
Nullity/defect of the old May be cured by novation Are not remedied, because
obligation only the correlative right of
the obligation is transmitted
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• The rules governing conventional subrogation are, of course, different
from those governing assignment of credit.
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without
the debtor’s knowledge;
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of confusion
as to the latter’s share.
• In the above stated cases, subrogation takes place by operation of law

even without the consent of the parties.
• Subrogation results from payment, which may be with or without the

knowledge or approval of the debtor.
EXAMPLES:
1. When a creditor pays another creditor who is preferred.
Example: Airiz owes Brook P10,000.00 secured by a first mortgage on the land
of Airiz. Airiz also owes Clariz P20,000.00. This debt is unsecured (or secured by a
second mortgage).
Under the law, Brook, who is a preferred creditor, has preference to payment with
respect to the land as against Clariz who is merely an ordinary creditor. If Clariz pays
the debt of Airiz to Brook, Clariz will be subrogated in Brook’s right so that she can have
the mortgage foreclosed in case Airiz fails to pay the P10,000.00 debt.
2. When a third person without interest in the obligation pays with the approval of
the debtor.
Airiz owes Brook P10,000.00. Clariz pays Brook with the express or implied consent of
Airiz. In this case, Clariz will be subrogated in the rights of Brook.
3. When a third person with interest in the obligation pays even without the
knowledge of the debtor.
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a. In the case above, if Clariz is the guarantor of Airiz, Clariz is a person
interested in the fulfillment of the obligation of Airiz as she would be benefited by its
extinguishment.
If Clariz pays Brook, even without the knowledge of Airiz, Clariz is subrogated in
the rights of Brook. Confusion takes place in the person of Clariz. Hence, the guaranty
is extinguished but the principal obligation still subsists.
b. Airiz and Brook are joint debtors of Clariz for the amount of P10,000.00.
Without the knowledge of Airiz, Brook pays the debt of P10,000.00.
In the above case, Brook becomes a creditor of Airiz for P5,000.00, the latter’s
share of the debt but not for the remaining P5,000.00, the portion of the debt which
corresponds to Brook, which is extinguished by confusion or merger of rights.
Article 1303. Subrogation transfers to the person subrogated the credit with
all the rights thereto appertaining, either against the debtor or against third
persons, be they guarantors or possessors of mortgages, subject to stipulation in
a conventional subrogation.
• Legal subrogation transfers to the new creditor the credit and all the rights
and actions that could have been exercised by the former creditor either
against the debtor or against third persons, be they guarantors or
mortgagors.
• In legal subrogation, the change is only in the person of the creditor. The
obligation remains the same in all respects as before the novation.
Article 1304. A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred to the person who
has been subrogated in his place in virtue of the partial payment of the same
credit.
PARTIAL SUBROGATION – exist when only a portion of the obligation was paid by the
new creditor; the original creditor remains a creditor for the balance which was not paid
by the new creditor.
Example: Daisy is liable to Carlota for P100,000.00. Xea pays Carlota

P60,000.00 with the consent of Daisy.
Partial subrogation exists in the amount of P60,000.00. Daisy is still the creditor
of the P40,000 balance. As such, two credits subsist. If Daisy becomes insolvent,
Carlota is preferred to Xea, meaning, she shall be paid from the assets of Daisy ahead
of Xea.
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Self-Help: You can also refer to the sources below to help you further
understand the lesson:
Albano, EV, Albano, EV Jr., Albano-Pua, MK, Albano, EV III 2016, Civil Law Reviewer,
Central Books Supply, Inc., Quezon City
Agpalo. R 2008, Obligations and contracts, Rex Bookstore, Inc., Manila, Philippines.
De Leon, H 2010,The law on obligations and contracts, Rex Bookstore, Inc., Manila,
Philippines.
Jurado, D 2009, Civil law reviewer, Rex Bookstore, Inc., Manila, Philippines.
Paras, E 2008, Civil code of the Philippines annotated, Volume IV, Arts. 1106-1457
(Prescription, Obligations and Contract), Rex Bookstore, Inc., Manila,
Philippines.
Soriano, F 2014 Notes in business law. GIC Enterprises & C0., Inc., Maniia
Vitug, J 2006, Civil Law, Volume III (Articles 1156-1641), Rex Bookstore, Inc., Manila,
Philippines.
Let’s Check
Activity 1. Now that you know the most essential terms in the study of the different
modes of extinguishing obligations in the Philippines, let us try to check your
understanding of these terms. In the space provided, write the term/s being asked in
the following statements:
_______________1. It is the total or partial extinction of an obligation through the

creation of a new one which substitutes it.
_______________2. It is the act, on the part of the debtor, of offering to the creditor the
thing or amount due.
_______________3. When the third person who paid only has the bare right to be
refunded but do not have the right to the guarantees and securities of the original
obligation.
_______________4. It is the meeting in one person of the qualities of creditor and

108
_______________5. It takes place when a third person of his own initiative and without
the knowledge or against the will of the original debtor assumes the latter’s obligation
with the consent of the creditor.
_______________6. It takes place when the creditor accepts a third person to take the
place of the debtor at the instance of the latter.
_______________7. When a person acquires ownership and other rights through the
lapse of time in the manner and under the conditions laid down by law.
_______________8. It is the proceeding for the purpose of subjecting a debtor’s credit

to the payment of his debt to another.
_______________9. It causes a drop in the value of money, resulting in the rise of the
general price level.
______________10. It is the gratuitous renunciation by the creditor of his right against

the debtor resulting in the extinguishment of the latter’s obligation in its entirely or in that
part of the same to which the renunciation refers.
Activity 2. Write the letters of the correct answers on the spaces provided for each
number.
_____1. Legal compensation will not take place if:

a. the debts have different due dates.
b. the debts are payable at different places.
c. both debts consist in a sum of money.
d. there is a retention or controversy involving one of the debts commenced by
third persons and communicated in due time to the debtor.
_____2. Doris owes Clarito P20,000, payable in 30 days. Not having enough cash to
pay the loan on due date, Doris offered to give either her cellphone or her bag to
Clarito. Clarito accepted the offer. Based on the given facts, which of the
following statements is incorrect?
a. The original obligation of Doris is an obligation with a period.
b. The original obligation of Doris is extinguished by novation.
c. The right to choose the ite to be given belongs to Clarito.
d. The new obligation is an alternative obligation.
_____ 3. Dacion en pago and payment by cession are special forms of payment. They
are similar in which of the following respects?
a. On the number of creditors involved.
b. On the extent of the properties involved in the payment.
c. On the purpose of the payment.
d. On whether the debtor is released completely from his obligations.
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_____4. Which of the following is a characteristic of expromision but not of delegacion?
a. It is made with or without the consent of the debtor.
b. The third person who makes the payment to the creditor is always entitled to
subrogation.
c. In case of insolvency of the new debtor, the creditor may still recover from the
original debtor under certain circumstances.
d. it is initiated by the debtor himself.
_____5. Danica is obliged to to pay Claire P100,000.00 on or before July 10, 2020.
Claire is obliged to pay Danica P100,000 due on July 20, 2020. Who may claim
compensation on July 10, 2020?
a. Danica only.
b. Claire only.
c. Either Danica or Claire.
d. Neither Danica or Claire.
_____6. The obligation is not extinguished by reason of the loss of the thing through a
fortuitous event in three of the following cases, except:
a. When the nature of the obligation requires the assumption of risks.
b. When the debtor has incurred in delay.
c. When the obligation is to give a determinate thing and the parties have not
stipulated whether or not there shall be liability in case of fortuitous events.
d. When the debtor has promised to deliver the same thing to two or more
persons who do not have the same interest.
_____7. Statement I: Payment made for an interest-bearing debt must first be applied to
the principal before the interest. Statement II: Payment made in good faith by the
debtor to a person in possession of the credit releases him from liability.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
_____8. Denice owes Chloe P25,000 payable on June 20, 2020. Chloe owes Denice
P10,000 payable on June 10. On June 12, Chloe assigned his credit rights to
Shane. Denice gave her consent to the assignment but did not reserve her right
to the compensation. On June 20, how much may Shane collect from Denice?
a. P25,000
b. P10,000
c. P15,000
d. Nothing
_____9. When two persons are claiming the same right to collect from you and you are
in doubt as to whom you will give your payment, your remedy so that you will not
pay to the wrong person is:
110
a. tender of payment
b. application of payment
c. dacion en pago.
d. consignation.
_____10. Statement I: If the old obligation is void, the novation will still be valid if the
new obligation is valid. Statement II: If the new obligation is void, the original one
shall subsist, unless the parties intended that the old obligation shall extinguished
in any event.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
Let’s Analyze
Instruction: Explain your answers thoroughly, with legal basis.
Case 1: Having failed to pay rent for three (3) months, the lessor demanded that the
lessee pay the back rentals and vacate the premises. Afterwards, the lessor filed a
complaint for unlawful detainer. The lessee contends that the lessor refused to accept
the rents. Is the contention of the lessee a valid defense to release him from his
responsibility to pay rent? What should have been the action by the lessee to release
him from responsibility?
Case 2: Ara borrowed P1 million from Barry. The loan was secured by a mortgage of
Ara’s land in favor of Barry. Without the knowledge of Ara, Clara paid Barry the sum of
P1 million for Ara’s debt. Ara benefited to the amount of P1 million.
1. May Clara claim reimbursement from Ara?
2. If so, how much?
3. If Ara cannot pay, may Clara foreclose the mortgage on Ara’s land?
Case 3: Andy owes Brandy P1 million. Candy, in behalf of Andy, pays Brandy P1 million
against the consent of Aandy, although Candy had previously told Andy that she
(Candy) did not intend to be reimbursed. Needless to say, Brandy accepted the
payment by Candy in behalf of Andy.
a. Is Andy’s obligation towards Brandy extinguished?
b. May Candy still recover from Andy, because of the fact that Andy did not consent to
what the law deems a donation on the part of Candy in favor of Andy?
Case 4: Pedro purchased a computer from Pedra. As payment, Pedro gave Pedra a
111
check equal to the selling price of the computer? Was there payment made? Why?
Case 5: Mario is indebted to Maria in the amount of P100,000. Neither informing Mario
nor asking his consent, Mark offered and Maria accepted to have Mark pay Mario’s
obligation, the latter not knowing that Mark is already insolvent. Is Mario still liable?
Why?
In a Nutshell
Instruction: Explain your answers thoroughly in your own words.
1. Enumerate and explain at least 3 principles/rules to be followed in payment as a

mode of extinguishment of obligation.
2. Compare dation en pago from novation.
3. Differentiate the various special forms of payments.
4. Compare the rules in case of loss of a generic thing versus loss of a specific thing.
5. Expound on the requisites for a valid condonation.
6. Differentiate the effect of a merger in the persons of the principal debtor or creditor
and merger in the person of the guarantor.
7. Compare legal compensation from conventional compensation.
8. Compare expromision from delegacion.
9. Explain the rules to be followed in a substitution.
10. Explain the rules to be followed in a subrogation.
Q & A List
Do you have any questions for clarification? You may write it them down below.
Questions/Issues Answers
1. 1.
2. 2.
3. 3.
112
4. 4.
5. 5.
Keywords Index
application of payments expromision modificatory novation

mortis causa
assignment of credit extinctive novation
condonation
breach of an obligation free disposal of the thing due natural impossibility
burden of proof garnishment Novation
capacity to alienate genus nunquam perit partial compensation
compensation good faith partial condonation
confusion or merger implied condonation partial loss
commodatum implied novation payment
complete condonation impossibility in fact payment by cession
condonation or remission inflation personal novation
consignation injunction physical impossibility
controversy inofficious Prescription
conventional
interest real novation
compensation
conventional novation inter vivos condonation Residence
conventional subrogation judicial compensation Reimbursement
dation in payment judicial cost resolutory condition
Debt legal compensation Retention
deflation legal impossibility Subrogation
delegacion legal novation Substitution
depositum legal subrogation Support
domicile Legal tender suspensive condition
estoppel legitime tender of payment
express condonation liquidated total compensation
express novation mixed novation Venue
113
COURSE SCHEDULES
Activity Date Where to submit
Big Picture ULOa: Let’s Sept. 9, 2020 BlackBoard LMS

Check Activities 1 and 2
Big Picture ULOa: Let’s Sept. 10, 2020 BlackBoard LMS

Analyze Activity
Big Picture ULOa: In a Sept. 14, 2020 BlackBoard LMS

Nutshell Activity
Big Picture ULOa: Q & A Sept. 14, 2020 BlackBoard LMS – Forum
List
Big Picture ULOb: Let’s Sept 16, 2020 BlackBoard LMS

Check Activities 1 and 2
Big Picture ULOb: Let’s Sept. 17, 2020 BlackBoard LMS

Analyze Activity
Big Picture ULOb: In a Sept. 18, 2020 BlackBoard LMS

Nutshell Activity
Big Picture ULOb: Q & A Sept. 21, 2020 BlackBoard LMS - Forum
List
Online Code of Conduct

1. Students are expected to abide by and honor code of conduct, and thus everyone
and all are exhorted to exercise self-management and self-regulation.
2. All students are guided by professional conduct as learners in attending On-Line

Blended Delivery (OBD) course. Any breach and violation shall be dealt with properly
under existing guidelines, specifically in Section 7 (Student Discipline) in the Student
Handbook.
3. Professional conduct refers to the embodiment and exercise of the University’s Core
Values, specifically in the adherence to intellectual honesty and integrity; academic
114
excellence by giving due diligence in virtual class participation in all lectures and
activities, as well as fidelity in doing and submitting performance tasks and
assignments; personal discipline in complying with all deadlines; and observance of
data privacy.
4. Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The
University shall institute monitoring mechanisms online to detect and penalize
plagiarism.
5. Students shall independently and honestly take examinations and do assignments,

unless collaboration is clearly required or permitted. Students shall not resort to
dishonesty to improve the result of their assessments (e.g. examinations, assignments).
6. Students shall not allow anyone else to access their personal LMS account. Students
shall not post or share their answers, assignment or examinations to others to further
academic fraudulence online.
7. By enrolling in OBD course, students agree and abide by all the provisions of the
Online Code of Conduct, as well as all the requirements and protocols in handling
online courses.
Course prepared by:
ATTY. ALNESSA THEA R. UY

Course Facilitator
Course reviewed by:
MARY GRACE S. SOMBILON, MSA, CPA

Program Head – BSA, BSMA
DEVZON U. PORRAS, MSA, CPA

Program Head – BSAT, BSAIS, BSIA
Approved by:
LORD EDDIE AGUILAR

Dean – College of Accounting Education
115

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UNIVERSITY OF MINDANAO

College of Accounting Education

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Course/Subject: ACC 216 – OBLIGATIONS AND CONTRACTS

Course Coordinator: Atty. Alnessa Thea R. Uy, REB

Big Picture in Focus:

Compound obligation - one where there are two or more prestations.

Conditional obligation – an obligation which depends upon a future or uncertain event,

Confusion or merger - a debtor is his own creditor.

contractual period – a period fixed by the parties in their contract.

conventional solidarity - where solidarity is agreed upon by the parties.

distributive obligation – an obligation in which one of two or more of the prestations is

divisible condition - the condition is susceptible of partial performance.

divisible obligation – an obligation the object of which, in its delivery or performance, is

express condition - the condition is clearly stated.

implied condition - the condition is merely inferred.

impossible condition - the condition is not capable of fulfillment, legally or physically.

improvement of thing – when the value of a thing is increased or enhanced by nature or

indivisible condition - the condition is not susceptible of partial performance.

indivisible obligation - is an obligation the object of which, in its delivery or performance,

judicial period - a period designated by the court.

legal indivisibility - where a specific provision of law declares as indivisible, obligations

legal loss - when a thing goes out of commerce.

legal penal clause - when the penal clause is stated in law.

legal period - when the period is provided for by law.

legal solidarity - where solidarity is imposed by the law.

negative impossible condition– the obligation not to do an impossible thing; the

obligation with a penal clause – is an obligation which includes an additional stipulation

physical loss - when a thing perishes.

possible condition - the condition is capable of fulfillment, legally and physically.

real solidarity - where solidarity is imposed by the nature of the obligation.

simple obligation - one where there is only one prestation.

Chapter 3 - Different Kinds of Obligations

CLASSIFICATIONS OF OBLIGATIONS (De Leon, 2010, p. 95-96)

1. Primary classification of obligations under the Civil Code:

2. Secondary classification of obligations under the Civil Code:

3. Classification of obligations according to Sanchez Roman:

Section 1 – Pure and Conditional Obligations

Every obligation which contains a resolutory condition shall also be

-Adapted. (De Leon, 2010)

WHEN OBLIGATION IS DEMANDABLE AT ONCE

-Adapted. (De Leon, 2010)

TWO PRINCIPAL KINDS OF CONDITIONS

2. RESOLUTORY CONDITION (condition subsequent) - one the fulfillment of which

CONDITIONAL OBLIGATION – an obligation which depends upon a future or uncertain

a. SUSPENSIVE OBLIGATION – the fulfillment of the condition gives rise to an

b. RESOLUTORY OBLIGATION – its happening extinguishes the obligation which is

INDICATIONS OF A TERM OR PERIOD

Article 1181. In conditional obligations, the acquisition of rights, as well as

• This article reiterates the distinction between a suspensive (or antecedent)

POTESTATIVE CONDITION - is a condition suspensive in nature and which depends

b. Dependent exclusively upon the will of the creditor – valid obligation.

d. Resolutory condition dependent solely on the will of the debtor – valid.

Example: right to repurchase in a sale with pacto de retro

Article 1183. Impossible conditions, those contrary to good customs or

The condition not to do an impossible thing shall be considered as not

POSSIBLE CONDITION – if it is capable of realization or actualization according to

IMPOSSIBLE CONDITION – if it is not capable of realization or actualization, legally or

2. LEGALLY IMPOSSIBLE – contrary to law, good customs, or public policy.

GENERAL RULES ON IMPOSSIBLE CONDITIONS

b. Pre-existing obligation with impossible condition – the obligation is valid, only

c. Obligation with a negative impossible condition – the condition is disregarded